Final answer:
The price of a $10,000 par Treasury bond priced at $10,250.00 would be quoted as 102.500 in the newspaper. Bond prices are quoted as a percentage of par value and reflect the interest rate environment; the price of existing bonds rises or falls opposite to the change in market interest rates.
Step-by-step explanation:
If the price of a $10,000 par Treasury bond is $10,250.00, the quote would typically be listed in the newspaper as a percentage of the par value. To find this, you divide the price by the par value and then multiply by 100 to convert it to a percentage. This gives us $10,250 / $10,000 × 100 = 102.5%. In bond market jargon, this is usually stated without the decimal, so the quote would be listed as 102.500. This is representing the bond price as a percentage of its face value. Therefore, the correct answer is C. 102.500.
When it comes to changes in interest rates, if you're considering the purchase of a bond issued at a lower interest rate than the current market rate, you would expect to pay less for the bond, because its fixed payments are less attractive compared to new bonds issued at the current higher rates. For example, suppose a bond was issued at 6%, but the current market rate for similar bonds has increased to 9%. The bond's price would decrease to provide a yield-to-maturity equivalent to the new 9% market rate.