Results 1 to 3 of 3

Math Help - How to solve interest rate to the ^5

  1. #1
    Member
    Joined
    Nov 2006
    Posts
    139

    How to solve interest rate to the ^5

    You have paid $980.30 for an 8% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 9% rate of return on this investment, what price must you sell the bond for? Is this realistic?


    I got the idea of how to solve it. No problem for the price. Then I would compute the yield to maturity, discounting all fututre cash payments and putting them equal to the price I have paid. Then once known the yirld I can see after one year, which has to be the price of the bond. And see whether it is smaller of higher than the price I need to have a 9%. Conceptually is easy.

    My problem is ho do I get the interest rate(the yield) because I have the discounting factor that arrives up to (1+i)^5 !! How do I solve for i ????

    HELP PLEASE
    Follow Math Help Forum on Facebook and Google+

  2. #2
    MHF Contributor
    Joined
    Apr 2005
    Posts
    1,631
    Why not show your computations leading to that (1+i)^5. We might be able to help you then because it's only Algebra after that, I think.
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Member
    Joined
    Nov 2006
    Posts
    139
    Quote Originally Posted by ticbol View Post
    Why not show your computations leading to that (1+i)^5. We might be able to help you then because it's only Algebra after that, I think.
    Sure!

    980.30= 80/(1+i) + 80/(1+i)^2 + 80/(1+i)^3 + 80/(1+i)^4 + (80+ 1000)/(1+i)^5

    How can I solve it?
    Thanks so much!
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Interest Rate Help
    Posted in the Business Math Forum
    Replies: 5
    Last Post: June 11th 2011, 09:47 AM
  2. Calculate interest rate based on interest in parcels
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 17th 2011, 09:38 PM
  3. solve for interest rate
    Posted in the Algebra Forum
    Replies: 2
    Last Post: October 17th 2009, 07:09 AM
  4. interest rate
    Posted in the Business Math Forum
    Replies: 2
    Last Post: March 24th 2009, 07:29 PM
  5. solve for interest rate
    Posted in the Business Math Forum
    Replies: 4
    Last Post: August 29th 2008, 07:14 AM

Search Tags


/mathhelpforum @mathhelpforum