Assume That You Are Considering the Purchase of a 20-Year,noncallable

question 73

Multiple Choice

Assume that you are considering the purchase of a 20-year,noncallable bond with an annual coupon rate of 9.5%.The bond has a face value of $1,000,and it makes semiannual interest payments.If you require an 10.7% nominal yield to maturity on this investment,what is the maximum price you should be willing to pay for the bond?

• A) $721.44
• B) $910.81
• C) $901.80
• D) $874.74
• E) $1,000.99

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Definitions:

Rate of Return

A rise or fall in an investment's value during a specified time, shown as a percentage of the cost of the investment.

Trust

A legal arrangement in which one party holds property or assets for the benefit of another, guided by the terms set in the trust agreement.

Interest Earnings

Income received from investments in interest-bearing financial instruments, such as savings accounts, CDs, or bonds.

Compounded Semi-Annually

Interest calculation method where interest is added to the principal sum twice a year, leading to interest earning interest over time.