Answer:
Coupon (R) = 6.8% x 10,000 = $680
Face value (FV) = $10,000
Number of times coupon is paid in a year (m) = 2
No of years to maturity = 8 years
Yield to maturity (Kd) = 8% = 0.08
Po = R/2(1- (1 + r/m)-nm) + FV/ (1+r/m)n
m
r/m
Po = 680/2(1-(1+0.08/2)-8x2) + 10,000/(1 + 0.08/2
)8x2
0.08/2
Po = 340(1 - (1 + 0.04)-16) + 10,000/(1 + 0.04)16
0.04
Po = 340(1-0.5339) + 10,000/1.8730
0.04
Po = 3,961.85 + 5,339.03
Po = $9,300.88
Explanation:
The current market price of a bond is a function of the present value of semi-annual coupon and present value of the face value. The present value of semi-annual coupon is obtained by multiplying the coupon by the present value of annuity factor at 8% for 8 years. The present value of face value is obtained by discounting the face value at the discount factor for 8 years. The addition of the two gives the present value of the bond. All these explanations have been captured by the formula.
Answer: C- Alzania's neighbor exported half its production of cotton that year
Explanation: Alzania produces and consumes 500,000 tons of cotton during a year. While, the neighbor which also employs the same number of people in the cotton industry, consumed 400,000 tons of cotton. There is no information on production of the neighbor. Just by looking at the consumption units we can argue that Alzania has an absolute advantage over the neighbor as it consumes more. However, if there is any information on the amount of exports of cotton from the neighbor then it will weaken the absolute advantage conclusion.
Thus, if <em>Alzania's neighbor exported half its production of cotton that year </em>the total production of cotton is greater of the neighbor than Alzania.
