Final answer:
The value 107.26 indicates that the $1,000 bond was sold for 107.26% of its face value, translating to $1,072.60. The price reflects the bond being sold at a premium, possibly due to lower market interest rates or lower risk associated with the bond at the time of issue.
The correct option is a. a percent and means the bond sold for $1,072.60.
Step-by-step explanation:
The question is about how the numeric value 107.26 relates to the issuance of a $1,000 bond. If a $1,000 bond was issued at 107.26, the 107.26 represents a price that is 7.26% above its face value. When quoted in this manner, bond prices are usually expressed as a percentage of the bond's face value, so 107.26 means that the bond sold for 107.26% of its face value. This translates to $1,072.60, which is the correct option in both parts of the question. Hence, the correct option is a. a percent and means the bond sold for $1,072.60.
To understand this further, one must consider the risk of the bond and prevailing market interest rates. If interest rates rise, as in the scenario provided where they go up to 12%, bonds with lower interest rates become less attractive. Sellers may need to lower the price to entice buyers, perhaps below the bond's face value. However, in this particular example, the bond was sold at a premium, indicating it was sold for more than its face value initially.