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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Last year, Charu bought a bond for $10,000 that promises to pay her $ 1,000 a year. This year, investors can buy a bond for $10,000 that promises to pay $800 a year. If Charu wants to sell her old bond, what is its price likely to be?

To determine

Calculation of selling price of an old bond.

Explanation

New bond price (BP) is $10,000. Yearly payment of new bond is $800. Yearly payment of old bond (YP) is $1,000.

The interest rate of bond in this year is calculated as below:

 Intrest rate=Yearly payment of new bondBond price=80010,000=0.08

Interest rate of bond is 8%

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