The game unfolds in two stages. In the first stage speculators buy bonds from issuers. In the second stage the speculators try to make a profit by selling their bonds to bond buyers. Bond issuers are given instructions reading: You are raising capital to finance a business expansion. You issue this bond. The market interest rate is 4%. Speculators are given instructions reading: You buy and sell bonds to earn a quick profit. The market interest rate is 4%. The issuers and speculators then negotiate a price. Considering the information given, what price should a speculator pay for this bond? ___________________________________ In the second stage of the game, the speculators turn around and try to sell the bonds to the bond buyers, hopefully at a profit. The crucial difference between the two stages is the interest rate, which had risen to 6%. The buyers are given instructions reading: You are buying bonds to earn interest. You can buy either corporate bonds or Government bonds. Either is just as good as the other. The speculators and buyers then negotiate a price. Considering the information given, what price should a buyer pay for this bond? ___________________________________
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