Suppose That Albert Can Buy a Bond for $1,000 That

question 114

Multiple Choice

Suppose that Albert can buy a bond for $1,000 that matures in two years and pays Albert $1,102.5 with certainty.He is indifferent between this bond and one that has some risk but on which the interest rate is 3% higher.How much,to the nearest penny,does the riskier bond pay in two years?

• A)$1,160.00
• B)$1,166.40
• C)$1,168.65
• D)$1,169.64

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Definitions:

Violating

The act of breaking rules or norms, or failing to comply with legal or moral standards.

Shadow Price

A monetary value assigned to currently unused resources, indicating the potential benefit if the resource were fully utilized.

Sensitivity Analysis

A method used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

Resource Constraint

A limitation on the availability of resources, which can affect the completion of projects or tasks.