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You are considering purchasing a consol that promises annual payments of $4.

a. If the current interest rate is 3 percent, what is the price of the consol?

Instructions: Round your answer to the nearest penny (2 decimal places).

The price of the consol is $

b. You are concerned that the interest rate may rise to 5 percent. Compute the percentage change in the price of the consol and the percentage change in the interest rate. Compare them.

Instructions: Round your answer for dollar amounts to the nearest penny (2 decimal places ) and answers for percentages to the nearest tenth (1 decimal place).

The new price of the consol would be $

The price of the consol falls by % and the interest rises by %.

c. Your investment horizon is one year. You purchase the consol when the interest rate is 5 percent and sell it a year later, following a rise in the interest rate to 6 percent. What is your holding period return?

Instructions: Round your answer to the nearest tenth (1 decimal place).

Your holding period return is %

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92653700

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