Consider a Bond That Pays $1000 in One Year

question 4

Multiple Choice

Consider a bond that pays $1000 in one year.Suppose that the market interest rate for savings is 8%,but the interest rate for borrowing is 10%.The price range that this bond must trade in a normal market if no arbitrage opportunities exist is closest to:

• A)$909 to $917.
• B)$909 to $926.
• C)$917 to $926.
• D)$909 to $1000.

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Definitions:

Goods and Services

Products and actions that fulfill human wants or needs, with goods being tangible items and services being intangible services.

Market System

A market system is an economic system where prices and the distribution of goods and services are determined by supply and demand in a competitive market.

Goods and Services

The physical items (goods) and actions or activities (services) that people produce and consume to satisfy their needs and wants.

Willing and Able

Refers to a consumer's readiness and capacity to purchase goods or services at a given price level.