What will be the price of isabellas existing bond

Reference no: EM13204049

Isabella buys a $1,000 bond that matures in 10 years (that is, she lends $1,000 to the U.S. Treasury for 10 years). The bond pays her $50 every year for 10 years. When the bond matures at year 10, she will receive her $1,000 back as well as her last interest payment of $50.

Suppose that if interest rates stay at 5%, Isabella can sell her bond for $1,000. But now the U.S. Treasury issues new 10-year bonds that pay 10% interest every year for 10 years. If Isabella tries to sell her existing bond, then the price of Isabella's existing bond will _____.

Reference no: EM13204049

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