Two Years Ago, Trans-Atlantic Airlines Sold a $250 Million Bond

question 23

Multiple Choice

Two years ago, Trans-Atlantic Airlines sold a $250 million bond issue to finance the purchase of new jet airliners. These bonds were issued in $1,000 denominations with an original maturity of 12 years and a coupon rate of 12%. Determine the value today of one of these bonds to an investor who requires a 14% rate of return on these securities.

• A) $626
• B) $463
• C) $897
• D) $270

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Definitions:

Third-party

An individual or group besides the two involved in a transaction or legal matter.

Possession

The actual holding or control of property, whether owned or not.

Engine

A machine designed to convert energy into useful mechanical motion to power vehicles, generators, and other devices.

Transmission

The act or process of transferring something from one place, person, etc., to another, commonly used in contexts like the transmission of electrical power or infectious diseases.