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From: js2j@mhuxt.UUCP (sonntag)
Newsgroups: net.invest,net.taxes
Subject: Re: ZERO Coupon Certificates
Message-ID: <749@mhuxt.UUCP>
Date: Thu, 11-Apr-85 10:41:04 EST
Article-I.D.: mhuxt.749
Posted: Thu Apr 11 10:41:04 1985
Date-Received: Sat, 13-Apr-85 03:07:13 EST
References: <425@ihu1e.UUCP>
Organization: AT&T Bell Laboratories, Murray Hill
Lines: 53
Xref: watmath net.invest:593 net.taxes:803

> There is five different bonds which each cost $2,000.00.
> Maturity of the five bonds is as follows:
> 
> 	 7 years	$  4,000.00
> 	10 years	$  6,000.00
> 	15 years	$ 10,000.00
> 	21 years	$ 20,000.00
> 	29 years	$ 50,000.00
> 
> Is there any way to figure out the actual interest rate that
> each bond is receiving. I am sending for more information today,
> but until I receive it, I though I would solicit information from
> the net.

     Figuring out the actual interest rate is relatively easy.  In the
following formulas, these variables mean:
	N : number of years to maturity
	V : value of bond at maturity
	C : initial cost of bond
	i : interest rate
	e : 2.71828... (the natural number) (not a variable, actually.)

    From the definition of compound interest:

    C * (1 + i)^N = V

    Solving this equation for i:

    i = e^(1/N * ln(V/C)) - 1

    That wasn't so hard, now, was it?
> 
> Since this pertains to the recent discussions on the net, you
> can either respond directly to me or back to the net.  I'm sure
> there might be other people interested in this info.
> 
> As always, adTHANKSvance.
> 
> Russ Sehnoutka
> AT&T Bell Laboratories
> Naperville, Ill. 60566
> (312) 979-7753
> ihnp4!ihu1e!genesis
> 
> -- 
> 	Russell N. Sehnoutka ------- AT&T Bell Laboratories 
> 	 ihnp4!ihu1e!genesis -------  Naperville, Illinois

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-- 
Jeff Sonntag
ihnp4!mhuxt!js2j
    "Pulled a muscle in my ear!"-Penfold