https://newconnect.mh connect.htm 20 Homework 4 6 Help Save & Exit Check my 2 Th

Question

https://newconnect.mh connect.htm 20 Homework 4 6 Help Save & Exit Check my 2 The following table shows the prices of a sample of Treasury strips. Each strip makes a single payment at maturity 98.552% 95.051 91.244 87.180 a. What is the 1-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the 2-year interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) 12 or 25 Next> Prex

Explanation / Answer

Answer: a) Year 1 interesr rate would be: R1 = (100/98.552)-1 1.47% Interest rate 1.47% b) Year 2 interest rate would be: R2 = ((100/95.051)^.5)-1 2.57% Interest rate 2.57% Year 3 interest rate would be: R3 = ((100/91.244)^.33-1 3.07% Interest rate 3.07% Year 4 interest would be: R4 = (100/87.180)^.25-1 3.49% Interest rate 3.49%

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