A year government bond issued on Jan st promises to pay a year until
it matures on Jan st The interest rate at issuance was per year.
a Find the bond price on Jan st ie the principal, or face value, of the bond
b Suppose the interest rate on year government bonds rises on Jan nd after
it is revealed that the government 'fiddled the books' to conceal a large budget deficit.
The interest rate paid on subsequent issuances of the year bond is per year.
What would you expect to happen to the resale price of the bond in a
c ABC Insurance purchased of the bonds described in a It has cash worth
and it owes insurance claims worth to its customers. Use this infor
mation to complete the table below. Does ABC Insurance remain solvent? Explain.
