If a Bond Offers $2,000 in Interest Payments at the End

question 39

Multiple Choice

If a bond offers $2,000 in interest payments at the end of each of next 5 years and a repayment of $10,000 also at the end of the 5 years and the current discount rate is 3 percent, what is the market price for the bond?

• A)$12,874
• B)$7,593
• C)$18,256
• D)$17,786

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Definitions:

Currency

A system of money in general use in a particular country or in the international market for trade and finance.

Reserve Requirement

The minimum amount of reserves a bank must hold against deposits, as mandated by central banking authorities to ensure banking system stability.

Tight Monetary Policy

A central bank policy aimed at reducing inflation and slowing down the growth in the money supply by raising interest rates and other measures.

Required Reserve Ratio

The fraction of deposits that banks are required by law to keep on hand as reserves or with the central bank.