1) A riskless zero-coupon (no coupon payments) bond that will pay $1,000 in 10 years is selling today for $650. What implied rate of return does the bond offer?

4.4%

35%

0%

6.5%

2) In 1880 five aboriginal trackers were each promised the equivalent of 100 Australian dollars for helping to capture the notorious outlaw Ned Kelley. In 1993 the granddaughters of two of the trackers claimed that this reward had not been paid. The Victorian prime minister stated that if this was true, the government would be happy to pay the $100. However, the granddaughters also claimed that they were entitled to compound interest. How much was each entitled to if the interest rate was 8%?

$1,004

$598,252

$100

$16,084

3)

You deposit $10,000 in your bank account. If the bank pays 2% compound interest, how much of your earnings will be interest on interest after 10 years?

$12,190

$190

$2,000

$2,190