Explain money.

Question

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Answer 1

Question

Chapter 11, Problem 1RQ

To determine

Explain money.

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.

Economics Concept Introduction

Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.

Coupon rate: The coupon rate is the interest rate promised when a bond is issued.

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Answer 2

Question

Chapter 11, Problem 1RQ

To determine

Explain money.

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.

Economics Concept Introduction

Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.

Coupon rate: The coupon rate is the interest rate promised when a bond is issued.

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Answer 3

Question

Chapter 11, Problem 1RQ

To determine

Explain money.

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.

Economics Concept Introduction

Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.

Coupon rate: The coupon rate is the interest rate promised when a bond is issued.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 11, Problem 1RQ

To determine

Explain money.

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.

Economics Concept Introduction

Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.

Coupon rate: The coupon rate is the interest rate promised when a bond is issued.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 11, Problem 1RQ

To determine

Explain money.

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.

Economics Concept Introduction

Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.

Coupon rate: The coupon rate is the interest rate promised when a bond is issued.

Answer 6

Chapter 11, Problem 1RQ

To determine

Explain money.

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.

Economics Concept Introduction

Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.

Coupon rate: The coupon rate is the interest rate promised when a bond is issued.

Answer 7

Chapter 11, Problem 1RQ

To determine

Explain money.

Answer 8

Expert Solution & Answer

Explanation of Solution

According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050 (Prinicipal amount+coupon payment) after one year.

If the coupon rate is greater than the current year interest rate, then the value of bond is higher than $1,000 today. For instance, if the coupon rate is 7% and the current year interest rate is 6%, then bond holder will receive $1,070 in one year, where the worth of bond is $1,009 today (1,070/1.06). In the same way, if the coupon rate is less than the current interest rate, then the value of bond will be lesser than $1,000 today.