Your financial advisor recommended that you buy some long bonds because she felt interest rates were going to decline. She pointed out that the price of those bonds would be more volatile than short bonds.

• She suggested $1000 par value, 40 year zero coupon bonds offered by a local utility selling at $372.43.
• She pointed out that the market rate of interest of 2.5% would be declining to 2% within the next 9 months based on her read of the Federal Reserve policy statements.

If her assessment is correct, what would you expect these bonds to be worth when interest rates drop to 2%. Show all your work.

Answer rating: 100% (QA)

face value of the bond Current Interest rate Maturity period Current price of the bond price of z... View the full answer