Happy Nappy Mattress Company Issued a 10-Year, 16% Bond in 2003

question 65

Multiple Choice

Happy Nappy Mattress Company issued a 10-year, 16% bond in 2003 that is callable at $1,100 in 5 years. In 2008 (today) the required return on bonds of this risk was 11%. The bonds pay interest semiannually. What would you be willing to pay for one of these bonds today if you believe the bond will be called today?

• A) $1,188.00
• B) $832.25
• C) $1,100.00
• D) $1,246.98

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Definitions:

MPS

Marginal Propensity to Save, which is the portion of additional income that a household saves rather than consumes.

APS

Assumes "APS" refers to "Average Propensity to Save," which is the proportion of total income or output that is saved rather than spent on consumption.

Induced Consumption

Refers to the portion of consumer spending that increases or decreases in response to changes in income.

Disposable Income

The pot of funds households have at their disposal for saving and spending, post-income tax.