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Answer :
The price the investor will pay for the Red Tree Inc. bond is b. $913.50, which is calculated as the average of the bid and ask prices.
The given bid and ask prices for the Red Tree Inc. bond are 91.250% and 91.350% respectively. To calculate the price the investor will pay, we take the average of the bid and ask prices. So, ($91.250% + $91.350%) / 2 = $913.50. This represents the midpoint between the bid and ask prices, ensuring a fair value for both the buyer and seller. Therefore, the correct option is b. $913.50.
The given statement "The price the investor will pay" is true because it is determined by averaging the bid and ask prices, ensuring a fair value for both parties involved in the transaction.
In the bond market, bid and ask prices are crucial indicators of supply and demand. The bid price represents the highest price a buyer is willing to pay, while the ask price represents the lowest price a seller is willing to accept. The price the investor ultimately pays lies between these two prices, typically calculated as the average of the bid and ask prices. This ensures a balanced and fair transaction for both the buyer and the seller. Hence, the correct option is b. $913.50.
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