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What is the interest rate on a one-year bond

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Question: In this chapter, we discussed Target Corporation bonds to illustrate the effect of default risk on the price of a bond. In particular, when the default risk rises, the demand for a bond falls and then the equilibrium price falls. In our example, the price of a $100,000 Target bond fell from $98,000 to $97,000.

a. What is the interest rate on a one-year $100,000 bond that sells for $98,000?

b. What is the interest rate on a one-year $100,000 bond that sells for $97,000?

Reference no: EM131481436

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