Ted's Welding Shop Has a Pure Discount Bond with a Face

question 228

Multiple Choice

Ted's Welding Shop has a pure discount bond with a face value of $5,000 that matures in one year. The risk-free rate of return is 4.5 percent. The assets of the business are expected to be worth either $4,800 or $5,200 in one year. Currently, these assets are worth $4,750. What is the current value of the bond?

• A) $4,006.13
• B) $4,166.67
• C) $4,268.11
• D) $4,671.65
• E) $4,784.69

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Definitions:

Proton

A subatomic particle found in the nucleus of an atom, possessing a positive electrical charge.

Conjugate Acid

A chemical species formed by the reception of a proton (H+) by a base, often involved in acid-base reactions.

Hydrogen Bonds

Weak bonds between a hydrogen atom in one molecule and an electronegative atom in another, crucial for the structure of many biological molecules.