Question

A money market security that has a par value of $10,000 sells for $8,924.70. Given that the security has a maturity of two years, what is the investor's required rate of return?

Answer 1

The answer is "5%".

Step-by-step explanation:

`\to \$8,924.70 = (10,000)/((1 + r )^2)\\\\\to \$8,924.70 (1+r)^2= 10,000\\\\\to (1+r)^2= (10,000)/(\$8,924.70)\\\\\to (1+r)^2= (10,000)/(\$8,924.70)\\\\\to (1+r)^2= 1.1204\\\\\to (1+r)= 1.05\\\\\to r= 1.05-1\\\\\to r=0.05\\\\\to r=5\%\\\\`