On March 28, 2008, Dover Motor Financing (DMF), offered some securities for sale

Question

On March 28, 2008, Dover Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $100,000 on March 28, 2033, but investors would receive nothing until then. Investors paid DMF $25,399 for each of these securities; so they gave up $25,399 on March 28, 2008, for the promise of a $100,000 payment 25 years later. Rate % (a) Based on the $25,399 price, what rate was DMF paying to borrow money? (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Rate of Return % (b) Suppose that, on March 8, 2019, this security

Explanation / Answer

a) 25399 *(1+r)^25 = 100000 r = 0.05635 r = 5.635 % b)25399*(1+r)^11 = 40883 r = 0.0442 r = 4.42 % c)40883*(1+r)^14 = 100000 r = 0.06597 r = 6.597 %

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