A 3-year bond with 10% coupon rate and $1000 face value yields 8%. Assuming annual coupon payment, calculate the price of the bo
nd. Group of answer choices
1 answer:
The group of answer choices are missing. Following is the complete question.
A 3-year bond with a 10% coupon rate and $1000 face value yield-to-maturity of 8%. Assuming annual coupon payments, calculate the price of the bond. Group of answer choices
A. $857.96
B. $951.96
C. $1000.00
D. $1051.54
Answer:
The answer is d. $1051.54
Explanation:
To calculate the price of the bond, we need to first calculate the coupon payment per period. The bonds are annual bonds so the coupon payment is per year.
Coupon Payment = 1000 * 0.10 = $100
Total periods = 3
The formula to calculate the price of the bonds today is attached.
Bond Price = 100 * [( 1 - (1+0.08)^-3) / 0.08] + 1000 / (1+0.08)^3
Bond Price = $1051.54
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Answer:
b. Cannot tell the change in equilibrium quantity. The equilibrium price will decrease
Explanation:
Two things are going on here
1. Income decreases, that will shift demand inwards. People can buy fewer goods at any given price
2. New technology is discovered, that shifts supply outwards. Costs are reduced so producers can produce more at a given price
The resulting effects are that price will decrease but the result in quantity is undetermined. This can be seen with the two examples attached. In both cases, the shifting of the curves from D0->D1 and S0->S1 results in lower prices. However, in one case the equilibrium quantity goes up and in the other goes up.
