This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: Suppose that a bond promises to pay 107 next year but the interest rate falls from 7 percent to 3 ... (Read 92 times)

AEWBW

  • Hero Member
  • *****
  • Posts: 579
on: Jun 29, 2018
Suppose that a bond promises to pay 107 next year but the interest rate falls from 7 percent to 3 percent per year. How much will the price of the bond be and why?
 
  What will be an ideal response?

Question 2

Which of the following tariffs resulted in worldwide retaliation against the United States during the Great Depression?
 
  A) the Chicken tariff B) the Pasta Tariff
  C) the Smoot-Hawley tariff D) the Tariff of Abominations


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

raili21

  • Sr. Member
  • ****
  • Posts: 324
Reply #1 on: Jun 29, 2018
Answer to Question 1

At 7 interest the price of the bond would have been 100 because you would need 100 invested at 7 to receive 107 next year. If the interest rate falls to 3 we can use the formula that says the price of the bond is the promised payment divided by one plus the interest rate to calculate that the price would now be 103.88. The price of the bond has risen because at the lower interest rate you would need to invest a larger sum in order to receive 107 next year.

Answer to Question 2

C


AEWBW

  • Member
  • Posts: 579
Reply 2 on: Jun 29, 2018
Wow, this really help

kswal303

  • Member
  • Posts: 316
Reply 3 on: Yesterday
Great answer, keep it coming :)

« previous next »
 

Did you know?

Increased intake of vitamin D has been shown to reduce fractures up to 25% in older people.

Did you know?

Chronic marijuana use can damage the white blood cells and reduce the immune system's ability to respond to disease by as much as 40%. Without a strong immune system, the body is vulnerable to all kinds of degenerative and infectious diseases.

Did you know?

Medications that are definitely not safe to take when breastfeeding include radioactive drugs, antimetabolites, some cancer (chemotherapy) agents, bromocriptine, ergotamine, methotrexate, and cyclosporine.

Did you know?

Alcohol acts as a diuretic. Eight ounces of water is needed to metabolize just 1 ounce of alcohol.

Did you know?

If you use artificial sweeteners, such as cyclamates, your eyes may be more sensitive to light. Other factors that will make your eyes more sensitive to light include use of antibiotics, oral contraceptives, hypertension medications, diuretics, and antidiabetic medications.

Reactions 1 through 4 are necessary for the formation of each peptide bond. Reactions 1 through 4 are necessary for the formation of each peptide bond.
Effects of Therapy for Stuttering A functional MRI scan shows regions of the superior temporal lobe Effects of Therapy for Stuttering A functional MRI scan shows regions of the superior temporal lobe
Rate of Residential Change, Past Year, in the United States Rate of Residential Change, Past Year, in the United States
Covalent and noncovalent bond energies Covalent and noncovalent bond energies
Research that has examined babies' ability to recognize themselves develops in the 2 year Research that has examined babies' ability to recognize themselves develops in the 2 year
You deposit $2000 each year into an account earning 4% interest compounded annually. How much ... You deposit $2000 each year into an account earning 4% interest compounded annually. How much ...
Video: Coronary Heart Disease Animation

For a complete list of videos, visit our video library