A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1000 at a price of $10,000. If the interest rate in the economy is now 12.5% a year and you want to sell the bond, the maximum price that you can get for it is:

Question

Quizplus · Accepted Answer

To calculate the maximum price that can be obtained for the bond, we need to find the value of the bond at the current interest rate. We can use the formula for present value of a bond:

PV = C / r

Where PV is the present value, C is the annual interest payment of $1000, and r is the interest rate. Substituting the given values, we get:

PV = 1000 / 0.125 = $8000

Therefore, the maximum price that can be obtained for the bond is $8000. Therefore, the best choice is B).

A Few Years Ago, You Bought a Bond with No