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09-05-2024
Business

Answered

Shi buys a two year government bond on 1 February 2020 with a principal of $1,000 and an annual coupon payment of $50. The market interest rate on 1 February is 5% per annum. On 2 February 2020 the RBA cuts interest rates. Interest rates fall to 2% per annum. What has happened to the price of this this two year bond as a result of interest rates falling?

a. The price of the bond has increased by $57
b. The price of the bond has decreased by $57
c. The price of the bond has increased by $58
d. The price of the bond has decreased by $58.
e. None of the other answers are true.

Answer :

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