You Are Contemplating the Purchase of a 20-Year Bond That

question 72

Multiple Choice

You are contemplating the purchase of a 20-year bond that pays $50 in interest each six months.You plan to hold this bond for only 10 years,at which time you will sell it in the marketplace.You require a 12 percent annual return,but you believe the market will require only an 8 percent return when you sell the bond 10 years hence.Assuming you are a rational investor,how much should you be willing to pay for the bond today?

• A) $1,126.85
• B) $1,081.43
• C) $737.50
• D) $927.68
• E) $856.91

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Definitions:

Strategy

Rule or plan of action for playing a game.

Dominant Strategy

A strategy that yields the best outcome for a player, regardless of what strategies other players select.

Constant-Sum Game

A situation in game theory in which the total gains and losses among participants are always balanced, implying that one player's gain is another's loss.

Simultaneous-Move

Refers to games or decision scenarios where all players make their moves at the same time, without knowledge of the others' choices.