Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 9, Problem 1TY
To determine
Determine the price of bond.
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Suppose that interest rates are 6 percent in the economy and a safe bond promises to pay $3 per year in interest forever. What do you think the price of the bond will be? Why? Suppose that the economy, interest rates suddenly fall to 3 percent. What will happen to the price of the bond that pays $3 per year?
How to find the effective interest rate of a bond?
You buy a bond that has an annual interest rate of 2 percent and a coupon of $4. What is the price of the bond?
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- Erin buys a bond that pays no coupon payments for $160. When the bond matures, she receives $200. Erin earned an interest rate of ____________ percent on this bond. (Enter your answer "as a percent, but without the percentage sign." If you think Erin earned 99.99 percent interest, enter only 99.99 in the blank.)arrow_forwardThe price of a bond is.arrow_forwardWhich factors affect the yield to maturity (or return on investment?arrow_forward
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