A firm offered some securities for sale to the public on March 28, 2008. Under t

Question

A firm offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, the firm promised to repay the owner of one of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid the firm $24,120 for each of these securities; so they gave up $24,120 on March 28, 2008, for the promise of a $100,000 payment 30 years later. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))


a.
Based on the $24,120 price, the firm was paying a rate of ??? percent to borrow money.


b.
Suppose that, on March 28, 2020, this security's price is $44,000. If an investor had purchased it for $24,120 at the offering and sold it on this day, she would have earned an annual rate of ??? percent.



c.
If an investor had purchased the security at market on March 28, 2020, and held it until it matured, she would have earned an annual rate of ??? percent.

Explanation / Answer

a. 100000= 24120(1+R)^30 R= 4.855% b. Sold on March 28, 2020, so the no of years= 12 44000=24120(1+R)^12 R= 5.1372% c. If an investor had purchased the security at market on March 28, 2020 the price = $44000 and held it for 18 years 100000= 44000(1+R)^18 R= 4.667%

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