Buddy bought a bond last year for $10,000.His bond pays $1,000 a year.This year a bond that sells for $10,000 pays $900 a year.If Buddy were to sell his (old)bond,its price would be approximately

Question

Quizplus · Accepted Answer

The yield on Buddy's bond is 10% ($1,000/$10,000). The current market yield is 9% ($900/$10,000). To find the price of Buddy's bond, set the yield equal to the market yield: $1,000/Price = 0.09. Solving for Price gives approximately $11,111.

Buddy Bought a Bond Last Year for $10,000