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Question
You are contemplating the purchase of a 20-year bond that pays $50 in interest each six months. You plan to hold this bond for only 10 years, at which time you will sell it in the marketplace. You require a 12 percent annual return, but you believe the market will require only an 8 percent return when you sell the bond 10 years hence. Assuming you are a rational investor, how much should you be willing to pay for the bond today?
a. $1,126.85
b. $1,081.43
c. $737.50
d. $927.68
e. $856.91
Answer
This answer is hidden. It contains 346 characters.
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