Question 3

A) Juan is contemplating buying a zero coupon bond that matures in 5 years and has a face value of $20,000. If the bond yields a return of 7.25%/year, how much should Juan pay for the bond? (Round your answer to the nearest cent.) $ _______

B) Use the formula for the effective rate (annual effective yield)

r_eff = (A/P)^1/t 1

where P is an initial investment in dollars, A is an accumulated amount in dollars, and t is time in years, to solve the exercise. Martha invested $50,000 in a boutique 6 years ago. Her investment is worth $90,000 today. What is the effective rate (annual effective yield) of her investment? (Round your answer to two decimal places.)

__________%

C) Steven purchased 1000 shares of a certain stock for $29,100 (including commissions). He sold the shares 3 years later and received $34,100 after deducting commissions. Find the effective annual rate of return on his investment over the 3-year period. (Round your answer to two decimal places.) _______ %/year