Two Years Ago Bonds Were Issued at Par with 10

question 101

Multiple Choice

Two years ago bonds were issued at par with 10 years until maturity and a 7% annual coupon.If interest rates for that grade of bond are currently 8.25%,what will be the market price of these bonds?

• A) $917.06
• B) $928.84
• C) $987.50
• D) $1,000.00

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Definitions:

Simple Interest

Interest charged exclusively on the initial borrowed amount, or on whatever portion of the principal is still outstanding.

Compounded Annually

A method of calculating interest in which the interest earned on an investment is reinvested, and new interest is earned on that interest annually.

Compounding

The financial process where an investment earns interest not only on the principal amount but also on the accumulated interest over time.