• Apr 20th 2010, 12:24 PM
mottin
I asked this question earlier, and i think i sovled it. could someone check it for me please? (sorry i cant do the symbols things)

original question:
Suppose you hold a bond that matures 3 months from today. Upon maturity, the bond pays you \$100. The price of the bond is \$96.50. What is the nominal interest rate associated with the bond, expressed as a compounded annual rate?

1- find out what the interest rate it (i used the Pert method)
96.5*e^3r=100
e^3r=100/96.5
3r=Ln(100/96.5)
r=.012 more or less

2- using the compounding formula to get the annual rate:
1(1+r)^n
1(1+.012)^12=1.154 more or less...

so the answer would be 15.4% ..? odes this sound right?
• Apr 20th 2010, 12:38 PM
harish21
Quote:

Originally Posted by mottin
I asked this question earlier, and i think i sovled it. could someone check it for me please? (sorry i cant do the symbols things)

original question:
Suppose you hold a bond that matures 3 months from today. Upon maturity, the bond pays you \$100. The price of the bond is \$96.50. What is the nominal interest rate associated with the bond, expressed as a compounded annual rate?

1- find out what the interest rate it (i used the Pert method)
96.5*e^3r=100
e^3r=100/96.5
3r=Ln(100/96.5)
r=.012 more or less

2- using the compounding formula to get the annual rate:
1(1+r)^n
1(1+.012)^12=1.154 more or less...

so the answer would be 15.4% ..? odes this sound right?

\$\displaystyle S = {S_0} e^{rt}\$

The time (t) is in years. 12 months = 1year , so 3 months = (3/12)=(1/4) year.
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