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Question
Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $70 each six months and has 10 years to go before it matures. If you buy this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a simple annual rate of 16 percent, but you expect the market to require a rate of only 12 percent when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond?
a. $800
b. $1,115.81
c. $1,359.26
d. $966.99
e. $731.85
Answer
This answer is hidden. It contains 371 characters.
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