An Investor Buys a Ten-Year, 7 Percent Coupon Bond for $1,050

question 1

Multiple Choice

An investor buys a ten-year, 7 percent coupon bond for $1,050, holds it for one year and then sells it for $1,040.What was the investor's rate of return?

• A)5.71 percent
• B)6.00 percent
• C)6.67 percent
• D)7.00 percent

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Definitions:

Luxury Good

A good for which demand increases more than proportionally as income rises, and is often considered non-essential but desirable.

First-Degree Price Discrimination

A pricing strategy where a seller charges each customer the maximum price they are willing to pay, capturing all consumer surplus.

Inverse Demand Function

A mathematical representation that describes how demand for a product varies inversely with changes in its price.

Consumer's Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount that they actually do pay.