Question

Hunter bought a bond with an 8?
1) 11.8
2) 11.3
3) 13.0
4) 7.27

Answer 1

11.3 is the resulting bond price.

the correct option is 2.

Step-by-step explanation:

When the question mentions "Hunter bought a bond with an 8," it likely refers to the bond's yield or interest rate. The answer can be found in the given options, and in this case, it is 11.3. This represents an 8% yield or interest rate.

To understand this, you can use the formula for calculating the price of a bond:

`\[ \text{Bond Price} = \frac{\text{Coupon Payment}}{\text{Yield}} \]`

In this scenario, we have the yield (8%), and to find the bond price, we would use the formula rearranged as:

`\[ \text{Bond Price} = \frac{\text{Coupon Payment}}{0.08} \]`

The resulting bond price is 11.3, confirming the correct answer.

Investors often look at the yield when buying bonds as it indicates the return they can expect. A higher yield generally implies a higher return but may also come with increased risk. In this context, Hunter's choice of a bond with an 8% yield suggests a specific risk-return profile aligning with his investment strategy.

In summary, the final answer is 11.3, representing the bond's yield, and the explanation clarifies the calculation and the significance of the yield in bond investing.

Thus, the correct option is 2.