Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 18, Problem 3P
To determine
Interest rate for an infinity time period.
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You own a zero-coupon bond that will pay 10,000 in two years. The interest rate from 2021 to
2022 is 0.09 and the interest rate from 2022 to 2023 is 0.03. What is the current price of this
bond? Please give your answer to two decimal places. (Hint: one must discount this bond twice:
once from 2022 to 2021; and then again from 2021 to 2020.)
An investor purchasing a British consol is entitled to receive annual payments from the British government forever.
What is the price of a consol that pays $250 annually if the next payment occurs one year from today? The market interest rate is 3.6
percent. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)
Present value
$
Suppose that the market interest rate in an economy is 7 percent and a bond promises to pay $615 after one year, $856 two years from now, and finally $1423 three years from now
The equilibrium market price of this bond is $
(Round your response to two decimal places)
If this bond were to sell for $2981 in the market,
then it is profitable
this bond from investors' perspectives.
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