Assume That You Are Considering the Purchase of a $1,000

Multiple Choice

Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $70 each six months and has 10 years before maturity. If you purchase this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a nominal annual rate of 16 percent, but you expect the market to require a nominal rate of only 12 percent when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond today?

A) $952.73
B) $955.51
C) $958.49
D) $961.39
E) $966.99