Ms. White has started her job and wanted to save her money in one way or other. But instead of saving money in the bank, she wished to invest it so that money could earn a return. She is intimidated by her friend's investment growth and decides to do the same. She decided to purchase a bond with face value $1,000. The annual coupon payment for the cond is 9%. The interest rate of the bond is 13% and maturity 2. She knew that the maturity levels and interest rate of the bond impact its price. So to test the same statement, she purchased 2 more bonds with the same specifications, except, one with maturity 2 and interest rate 10% while the other with maturity 3 and interest rate 13%. Determine the impact of change in the value of the bond. A: The bond selling price is $773.98 when interest rate decrease to 10% and $819.01 when maturity increases to 3. B: The bond selling price is $796.46 when interest rate decrease to 10% and $853.63 when maturity increases to 3. C: The bond selling price is $982.64 when interest rate decrease to 10% and $835.07 when maturity increases to 3. D: The bond selling price is $900.00 when interest rate decrease to 10% and $979.65 when maturity increases to 3. Typed solution
Ms. White has started her job and wanted to save her money in one way or other. But instead of
saving money in the bank, she wished to invest it so that money could earn a return. She is
intimidated by her friend's investment growth and decides to do the same. She decided to
purchase a bond with face value $1,000. The annual coupon payment for the cond is 9%. The
interest rate of the bond is 13% and maturity 2. She knew that the maturity levels and interest
rate of the bond impact its price. So to test the same statement, she purchased 2 more bonds
with the same specifications, except, one with maturity 2 and interest rate 10% while the other
with maturity 3 and interest rate 13%. Determine the impact of change in the value of the bond.
A: The
maturity increases to 3.
B: The bond selling price is $796.46 when interest rate decrease to 10% and $853.63 when
maturity increases to 3.
C: The bond selling price is $982.64 when interest rate decrease to 10% and $835.07 when
maturity increases to 3.
D: The bond selling price is $900.00 when interest rate decrease to 10% and $979.65 when
maturity increases to 3.
Typed solution
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