3.. Rust Bucket Motor Credit Corporation (RBMCC), a subsidiary of Rust Bucket Mo

Question

3.. Rust Bucket Motor   Credit Corporation (RBMCC), a subsidiary of Rust Bucket Motor, offered some   securities for sale to the public on March 28, 2008. Under the terms of the   deal, RBMCC 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 RBMCC $24,399 for each of these securities; so they gave up $24,399 on   March 28, 2008, for the promise of a $100,000 payment 30 years later.

a.

Based on the $24,399   price, what rate was RBMCC paying to borrow money?

  Rate of   return

%    

b.

Suppose that, on March   28, 2019, this security

3.. Rust Bucket Motor   Credit Corporation (RBMCC), a subsidiary of Rust Bucket Motor, offered some   securities for sale to the public on March 28, 2008. Under the terms of the   deal, RBMCC 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 RBMCC $24,399 for each of these securities; so they gave up $24,399 on   March 28, 2008, for the promise of a $100,000 payment 30 years later.

Explanation / Answer

a. 100000=23299(1+r)^30
r= 4.976%


b. 41580= 23299(1+r)^19
r= 3.0954%

c.100000= 41580(1+r)^19
r= 4.727%

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