Question
In: Economics
1. You purchased an IBM bond with a face value of $10,000 and an interest rate...
1. You purchased an IBM bond with a face value of $10,000 and an
interest rate of 10%. Suddenly, the market interest rate changes,
which raises your bond price by $600.
What was the original price of the bond? (Compute this answer to
two decimal places.)_____?
2.What is the new market interest rate? (Compute this answer to two decimal places.)______?
Solutions
Expert Solution
1. 110% = 10,000
100% = 10,000 * (100% / 110%) = $9,090.91
The original price of the bond = $9,090.91
2. When the bond price increased by $600, the new bond price = $9,090.91 + $600 = $9,690.91
The new market interest rate = [(10,000 - 9,690.91) / 9,690.91] * 100 = 3.19%
Rahul Sunny answered 2 years agoRelated Solutions
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