Effective Annual Interest Rate
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Which security has a higher effective annual interest rate (a or b)?
a. A 6-month T-bill selling at $96,525 with par value of $100,000.
b. A coupon bond selling at par paying a 10% coupon semiannually.
Please show calculations. I don't understand.
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Solution Summary
Effective annual interest rate determinations for a T bill and a coupon bond is provided.
Solution Preview
To find the effective interest rate, we use the formula r = [ (1+i/n)^n ] - 1, where r is the effective rate, i is the ...
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