You have been offered the opportunity to purchase a bond that will pay $100 in interest at the end of each of the next three years, and a $1000 repayment of principal at the end of the third year. The current interest rate is 12%.
a. Calculate the selling price of the bond. (You may assume that 12% accurately reflects the risk of the bond.)
b. What would happen to the selling price of the bond if interest rates should fall?

Question

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The Answer of You have been offered the opportunity to purchase a bond that will pay $100 in interest at the end of each of the next three years, and a $1000 repayment of principal at the end of the third year. The current interest rate is 12%.
a. Calculate the selling price of the bond. (You may assume that 12% accurately reflects the risk of the bond.)
b. What would happen to the selling price of the bond if interest rates should fall?

You Have Been Offered the Opportunity to Purchase a Bond