What Is the Price You Would Be Willing to Pay

question 30

Multiple Choice

What is the price you would be willing to pay today for an IOU for $500 due in one year if you want to earn at least 16%?

• A)$480.00
• B)$431.03
• C)$450.00
• D)$395.33
• E)$418.23

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Definitions:

Futures Price

The agreed-upon price for the future exchange of an asset; a financial contract specifying the price at which an asset, often a physical commodity or a financial instrument, will be bought or sold at a future date.

Spot Price

The current market price at which a particular asset, such as a commodity, security, or currency, can immediately be bought or sold.

Interest Rate Futures

Futures contracts that speculate on the future value of interest rates, allowing investors to hedge or speculate on changes in interest rates.

Initial Margin

The minimum amount of funds required to open a new position in a market, serving as a security deposit to cover credit risk.