Question

Last year, Eric bought a bond for $10,000 that promises to pay him $700 per year. This year, he can buy a bond for $10,000 that promises to pay $800 per year. If Eric wants to sell his old bond, what is its price likely to be?

Answer 1

the price is $8,750

Step-by-step explanation:

The computation of the price is shown below:

The rate of interest in the last year is

= Paid amount ÷ purchased value of the bond

= $700 ÷ $10,000

= 7%

ANd, in the current year, the rate of interest is 8%

So, the price would be

= Paid amount ÷ current year rate of interest

= $700 ÷ 0.08

= $8,750

Hence, the price is $8,750

We simply applied the above formula so that the correct value could come

And, the same is to be considered