Buddy bought a bond last year for $10,000.His bond pays $800 a year.This year a bond that sells for $10,000 pays $850 a year.If Buddy were to sell his (old)bond,its price would be approximately

Question

Quizplus · Accepted Answer

Buddy's old bond pays $800 a year, which is less than the $850 a year that the current bond pays. This means that Buddy's old bond is less valuable than the current bond, so its price would be discounted. To find the approximate value of the old bond, we can divide the annual payment of $800 by the current bond's yield of 8.5% ($850/$10,000). This gives us a value of $9,411.76, which is closest to answer choice B.

Buddy Bought a Bond Last Year for $10,000