ABC Corporation is issuing some zero coupon bonds, which pay no interest. At maturity in 15 years they pay a face value of $1000. The bonds are expected to sell for $275 when issued. (a) What is the effective interest rate an investor receives? (b) A 1.5% fee (based on the face value) is deducted by the brokerage firm from the initial revenue. What is the effective annual interest rate paid by ABC Corporation?
ABC Corporation is issuing some zero coupon bonds, which pay no interest. At maturity in 15 years they pay a face value of $1000. The bonds are expected to sell for $275 when issued. (a) What is the effective interest rate an investor receives? (b) A 1.5% fee (based on the face value) is deducted by the brokerage firm from the initial revenue. What is the effective annual interest rate paid by ABC Corporation?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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ABC Corporation is issuing some zero coupon bonds, which pay no interest. At maturity in 15 years they pay a face value of $1000. The bonds are expected to sell for $275 when issued. (a) What is the effective interest rate an investor receives? (b) A 1.5% fee (based on the face value) is deducted by the brokerage firm from the initial revenue. What is the effective annual interest rate paid by ABC Corporation?
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