Consider a one year T-bill (referred to as 'bond' hereafter) with a face value of $1,000

Economics Mar 05, 2023

Consider a one year T-bill (referred to as 'bond' hereafter) with a face value of $1,000. The bond is issued today. Whoever owns this bond one year from today will get paid $1,000 from the issuer of the bond.

1.Jack, an investor, is considering buying this bond. If he requires a 5% annual return (the interest rate the bond issuer needs to pay) how much would he pay for the bond today? What if he required 12%?

Briefly explain your computations.