A zero-coupon bond that will pay $1,040 in 11 years is selling today for $440

Finance Mar 19, 2021

A zero-coupon bond that will pay $1,040 in 11 years is selling today for $440.81. What interest rate does the bond offer? (Round your answer to 2 decimal places.)
Interest rate

Expert Solution

Computation of Interest Rate using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Interest Rate = ?

Nper = 11 years

PMT = 0

PV = $440.81

FV = $1,040

Substituting the values in formula:
=rate(11,0,-440.81,1040)

Rate or Interest Rate = 8.12%

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