How much would you be willing to pay for this security

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Reference no: EM13245502

Suppose that you are considering the purchase of a security that pays $600 every year and repays its principal amount of $10,000 at the end of the four year.

a. How much would you be willing to pay for this security if the market interset rate is 6 percent?

b. Suppose that you have just purchased the security, and suddenly the market interset rate falls 5 percent. What is the security worth?

c. Suppose that one year has elapsed, you have received the first payment of $600, and the market interset rate is still 5 percent. How much would another investor be willing to pay for your security?

d. Suppose that two years have elapsed since you purchased the security, and you have received the first two payments of $600 each. Now suppose that the market interset rate suddenly jumps to 10 precent. How much would be another investor be willing to pay for your security?

Reference no: EM13245502

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