Question

1. Working with Numbers and Graphs Q1 Last year, Raphael bought a bond for $10,000 that promises to pay him $900 per year. This year, he can buy a bond for $10,000 that promises to pay $1,000 per year. If Raphael wants to sell his old bond, what is its price likely to be

Answer 1

Answer:

$9,000

Explanation:

Last year, Raphael bought a bond for $10,000 that promises to pay him $900 per year

Interest rate = $900/$1000 * 100 = 9%

This year, he can buy a bond for $10,000 that promises to pay $1,000 per year.

Interest rate = 1,000/10000 * 100 = 10%

If Raphael wants to sell his old bond, he has to lower its price in order to compensate for rise in interest rate. The bond, which he would sell, should pay 10% interest PA

=>> 900/10% * 100 = $9,000

So, the bond price is likely to be $9,000