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What is the annual compound interest rate of an investment with a stated interest rate of...

What is the annual compound interest rate of an investment with a stated interest rate of 7%, compounded quarterly for nine years?

PLEASE SHOW ALL WORK

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Answer #1

Information provided:

Par value= future value= $1,000

Time= 9 years*4= 36 quarters

Coupon rate= 7%/4= 1.75%

Coupon payment= 17.50

The annual compound interest rate is computed by calculating the yield to maturity.

The yield to maturity is computed by entering the below in a financial calculator:

FV= 1,000

N= 36

PMT= -17.50

Press the CPT key and I/Y to compute the yield to maturity.

The answer obtained is 2.4859.

Therefore, the annual compound interest rate is 2.4859%*4= 9.9435% 9.94%.

In case of any query, kindly comment on the solution

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