genesis@ihu1e.UUCP (R. Sehnoutka) (04/11/85)
*** REPLY TO THIS MESSAGE WITH YOUR ANSWER *** Last month, the discussion about zero coupon bonds came up. In yesterdays Chicago Tribune (April 10th), there was an ad from StPaul Federal Bank zero coupon cirtificates. 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. 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
genesis@ihu1e.UUCP (R. Sehnoutka) (04/11/85)
> *** REPLY TO THIS MESSAGE WITH YOUR ANSWER *** > > Last month, the discussion about zero coupon bonds came up. > In yesterdays Chicago Tribune (April 10th), there was an ad > from StPaul Federal Bank zero coupon cirtificates. > > 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. > > 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 > I forgot to mention that all these bonds are insured up to $100,000.00 by the FSLIC, so it seems that they might be good for an IRA. -- Russell N. Sehnoutka ------- AT&T Bell Laboratories ihnp4!ihu1e!genesis ------- Naperville, Illinois
js2j@mhuxt.UUCP (sonntag) (04/11/85)
> 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 *** REPLACE THIS LINE WITH YOUR MESSAGE *** -- Jeff Sonntag ihnp4!mhuxt!js2j "Pulled a muscle in my ear!"-Penfold
rb@houxn.UUCP (R.BOTWIN) (04/12/85)
[] Simplest method to get "ballpark" answers is use the guzinta-72 method! Ex: if money doubles in 5 years, then 5 guzinta 72 14.4 times, so it's about 14.4% interest! Therfore: 7 yrs 2-> 4 is doubling 1 int= 10.3% 10 2-> 6 " 1.5 10.8 15 2-> 10 2.25 10.8 21 2-> 20 3.25 11.1 29 2-> 50 4.56 11.3 it's not precise....but it's close enough for government work!
jmsellens@watmath.UUCP (John M Sellens) (04/13/85)
One minor addition to Jeff Sonntag's explanation of how to figure the implicit interest rate on a zero coupon bond. If you change the definition of N to be "number of compounding periods to maturity" and the definition of i to be "interest rate per compounding period". It makes it easier to compare to other instruments, because most/many rates are quoted as semi-annual compounding. To figure the equivalent semi-annual compounding rate on say, the 7 year bond, set N=14, solve for i, then double i to get the nominal annual rate. John Sellens
cate3@cadtec.UUCP (Henry Cate III) (04/14/85)
With the equation provided i = e^(1/N * ln(V/C)) - 1 I get
the following:
C = $2,000.00
N V This column has been added
> There is five different bonds which each cost $2,000.00.
> Maturity of the five bonds is as follows:
>
> 7 years $ 4,000.00 10.4%
> 10 years $ 6,000.00 11.1%
> 15 years $ 10,000.00 11.3%
> 21 years $ 20,000.00 11.2%
> 29 years $ 50,000.00 11.2%
>
Henry III UUCP: {nsc,csi}!cadtec!cate3
Cadtec Corp San Jose, CA 408 942 1535 x384
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