If a Company's Bond Can Be Purchased Today and Expects

question 13

Essay

If a company's bond can be purchased today and expects to earn investors 5% p.a, paying $100 at the end of 25 years, what is today's price? What could occur, to the price of the bonds if the company's level of risk increases? Why?

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Definitions:

Efficient Market

A financial market theory suggesting that asset prices fully reflect all available information, making it impossible to consistently achieve higher returns than the average market return.

Cogito Ergo Sum

A philosophical statement by René Descartes, which translates to "I think, therefore I am," used to demonstrate the existence of the self and consciousness.

Carpe Diem

A Latin aphorism usually translated as "seize the day," encouraging individuals to make the most of the present moment without concern for the future.

Redistribution Of Income

The transfer of income from certain individuals or groups to others through mechanisms such as taxation, welfare, and government policies.