Unformatted text preview: year . Calculate the present discounted value (cost) of each of Henry’s options. (b) Find the monthly discount rate (i.e., personal interest rate) at which Henry would be indi±erent between the two options. 3. Wilma bought a 10-year $1000 bond when the interest rate was 5% per year. So her bond would provide her with $50 at the end of each of ten successive years; and the $1000 is also returned at the end of ten years. She has just collected her seventh annual payment on the bond. Suppose now she wants to sell the bond because she is in need of money sooner than expected. (a) Suppose the interest rate is still 5% and this is expected to continue for the indeﬁnite future. How much can she expect to sell her bond for? (b) Suppose the interest rate has increased to 10% and this is 10% rate is expected to continue for the indeﬁnite future. How much can she expect to sell her bond for?...
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- Winter '08
- Microeconomics, Henry, present discounted value, monthly discount rate, new Honda Civic