Suppose That the Price of a Bond Is Equal to the Sum

question 174

Multiple Choice

Suppose that the price of a bond is equal to the sum of the present value of its future payments.Suppose further that the bond pays $50 today,$50 one year from today,and $1,050 two years from today.What is the price of this bond if the interest rate is 5 percent?

• A)$1,000
• B)$1,050
• C)$1,100
• D)None of the above is correct.

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Definitions:

Economists

Professionals who study and apply theories and concepts related to economies, analyzing trends and advising on economic policy.

Henry George

An American political economist known for his belief that people should own the value they produce themselves, but that the economic value derived from land (including natural resources) should belong equally to all members of society.

Land-Rent Income

Income derived from owning land and leasing it for economic use, such as agriculture, construction, or commercial development.

David Ricardo

An influential British economist known for developing the comparative advantage theory, which explains how nations can gain from trade by specializing in producing goods for which they have a lower opportunity cost relative to other countries.