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:

Without Restriction

A term indicating that something can be used, accessed, or done freely without any limitations or conditions.

Creditors

Individuals or institutions to whom money is owed by debtors, or people who have borrowed money.

Shareholders

Individuals or entities who own one or more shares of stock in a corporation, making them partial owners of the company.

Dissolution

The process of legally dissolving or ending an entity, such as a corporation or partnership.