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 50 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

kishoreddi

  • Member
  • Posts: 329
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

« previous next »
 

Did you know?

Not getting enough sleep can greatly weaken the immune system. Lack of sleep makes you more likely to catch a cold, or more difficult to fight off an infection.

Did you know?

Hip fractures are the most serious consequences of osteoporosis. The incidence of hip fractures increases with each decade among patients in their 60s to patients in their 90s for both women and men of all populations. Men and women older than 80 years of age show the highest incidence of hip fractures.

Did you know?

The strongest synthetic topical retinoid drug available, tazarotene, is used to treat sun-damaged skin, acne, and psoriasis.

Did you know?

As the western states of America were settled, pioneers often had to drink rancid water from ponds and other sources. This often resulted in chronic diarrhea, causing many cases of dehydration and death that could have been avoided if clean water had been available.

Did you know?

Bisphosphonates were first developed in the nineteenth century. They were first investigated for use in disorders of bone metabolism in the 1960s. They are now used clinically for the treatment of osteoporosis, Paget's disease, bone metastasis, multiple myeloma, and other conditions that feature bone fragility.

Rate of Residential Change, Past Year, in the United States Rate of Residential Change, Past Year, in the United States
Influence of enzyme-substrate affinity on the rate of an enzyme-catalyzed reaction. Influence of enzyme-substrate affinity on the rate of an enzyme-catalyzed reaction.
Charlie Stone wants to retire in 30 years, and he wants to have an annuity of $1000 a year for ... Charlie Stone wants to retire in 30 years, and he wants to have an annuity of $1000 a year for ...
Mishu wants to invest an inheritance of $20,000 for one year. His credit union offers 8.85% for ... Mishu wants to invest an inheritance of $20,000 for one year. His credit union offers 8.85% for ...
A non-interest-bearing five-year note for $54600.00 issued May 1, 2015, is discounted April 1, ... A non-interest-bearing five-year note for $54600.00 issued May 1, 2015, is discounted April 1, ...
Ionic Bond: Sodium Chloride Ionic Bond: Sodium Chloride
Video: Regulation of GFR: autoregulation via myogenic mechanism Myogenic mechanism

For a complete list of videos, visit our video library