a. Suppose a U.S. Treasury bill, maturing in one year, can be purchased today for $92,500. Assuming that the security is held until maturity, the investor will receive $100,000 (face amount). Determine the rate of return on this investment.
b. Suppose a National Telephone and Telegraph (NTT) Company bond, maturing in one year, can be purchased today for $975. Assuming that the bond is held until maturity, the investor will receive $1,000 (principal) plus 7 percent interest (that is, 0.07 $1000 = $70). Determine the rate of return on this investment.
c. Determine the implied risk premium on NTT bonds.