Use the Following Information to Answer the Question(s)below

question 19

Multiple Choice

Use the following information to answer the question(s) below.
-The price today of a three-year default-free security with a face value of $1000 and an annual coupon rate of 4% is closest to:

• A)$1002.78.
• B)$1003.31.
• C)$1028.50.
• D)$1028.61.

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Definitions:

EOQ Model

Economic Order Quantity model; an inventory management method used to determine the optimum order quantity that minimizes the total inventory holding costs and ordering costs.

Shortage Costs

Costs that fall with increases in the level of investment in current assets.

Carrying Costs

Expenses incurred for holding inventory, including storage, insurance, and handling costs.

Bond Yields

The amount of return an investor realizes on a bond, calculated by dividing annual interest payments by the bond's current market price.