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:

Percent

A unit of measure that represents one hundredth of a whole.

Perfect Accuracy

The condition of being completely correct or precise without any error.

Digits

The characters used to represent numbers in counting or numerical representation, typically from 0 through 9.

Values

Core beliefs or standards that guide behavior and decision-making in individuals or organizations.