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You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in twelve years. If the bond is currently selling for $496.97, then the internal rate of return (IRR) for investing in this bond is closest to ________.

Respuesta :

jepessoa

Answer:

6%

Explanation:

we can use the future value formula to determine the internal rate of return:

future value = present value (1 + r)ⁿ

  • future value = $1,000
  • present value = $496.97
  • n = 12
  • r = ?

1,000 = 496.97 (1 + r)¹²

(1 + r)¹² = 1,000 / 496.97 = 2.012194

¹²√(1 + r)¹² = ¹²√2.012194

1 + r = 1.059999

r = 1.059999 - 1 = 0.059999 ≈ 6%

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