Final answer:
A bond with a put option is influenced by changes in interest rates and the shape of the yield curve. When the yield curve is downward sloping, the bondholder may expect to pay more or less than $10,000 for the bond, depending on the terms of the put option.
Step-by-step explanation:
A bond with a put option is a type of bond that gives the bondholder the right to sell the bond back to the issuer before its maturity date. The value of a bond with a put option is influenced by changes in interest rates and the shape of the yield curve.
When the yield curve is downward sloping, it indicates that long-term interest rates are lower than short-term interest rates. In this scenario, the bondholder may expect to pay more than $10,000 for the bond if the put option is exercisable at a higher interest rate.
This is because the bond's price will be higher due to the higher interest rate offered by the bond compared to the current market rates.
On the other hand, if the put option is exercisable at a lower interest rate, the bondholder may expect to pay less than $10,000 for the bond when the yield curve is downward sloping. This is because the bond's price will be lower due to the lower interest rate offered by the bond compared to the current market rates.