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For the purposes of this module you are expected to learn about the following interest rate-related functions: (1) DISC ; (2) EFFECT ; (3) NOMINAL;

For the purposes of this module you are expected to learn about the following interest rate-related functions:

(1) DISC ; (2) EFFECT ; (3) NOMINAL; (4) RATE

Based on your understanding of these functions, complete the following statements:

The DISC function is designed to calculate the of a security.
The EFFECT function is designed to calculate the .
The NOMINAL function is designed to calculate .
The RATE function is designed to calculate the interest rate required to . (Note: Two correct answers are available for this question.)

Consider the following situations where you need to use one of the functions described earlier. Identify which function will be most appropriate to use in each scenario to calculate the relevant interest rate.

Compute the interest rate, or yield, earned by a non-coupon-paying (discount) bond that is purchased on June 1, 2015 and that matures on May 31, 2017. Assume that the price per $100 face value of the bond is $95, the redemption value per $100 of face value is $100, and the basis is 0 (US (NASD) 30/360). Remember: You can express the bonds settlement and redemption dates either as a normal date (e.g., 6/01/2015 enclosed in quotation marks) or as a sequential integer value found using the DATEVALUE function. If you elect to use the sequential integer method, use the DATEVALUE to determine that the appropriate value for June 1, 2015 is 42156, and the corresponding date for May 31, 2017 is 42886. (Note: Round your answer to two decimal places.)

NOMINAL

EFFECT

DISC

RATE

A

B

1 Data Description
2 Settlement date 6/1/2015
3 Maturity Date 5/31/2017
4 Price 95
5 Redemption value 100
6 Basis 0
7 Interest Rate =
8

%

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