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A 1-year government bond issued on Jan 1st 2023 promises to...

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Accounting

A 1-year government bond issued on Jan 1st 2023 promises to pay 100 a year until
it matures on Jan 1st 2024. The interest rate at issuance was 5% per year.
(a) Find the bond price on Jan 1st 2023(i.e. the principal, or face value, of the bond).
(b) Suppose the interest rate on 1-year government bonds rises on Jan 2nd 2023, after
it is revealed that the government 'fiddled the books' to conceal a large budget deficit.
The interest rate paid on subsequent issuances of the 1-year bond is 10% per year.
What would you expect to happen to the resale price of the bond in (a)?
(c) ABC Insurance purchased 10 of the bonds described in (a). It has cash worth
10,000 and it owes insurance claims worth 25,000 to its customers. Use this infor-
mation to complete the table below. Does ABC Insurance remain solvent? Explain.
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