If an Investor Purchases a 3%, 5-Year Bond at Its

question 84

Multiple Choice

If an investor purchases a 3%, 5-year bond at its par value of $1,000 and the CPI increases 3% over each of the next 5 years, what will be the real value of the principal at maturity?

• A)$1,000.00
• B)$1,030.00
• C)$1,060.90
• D)$1,061.36

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Definitions:

Leverage

The use of borrowed capital or debt to fund an investment, aiming to expand asset base and generate returns on risk capital.

Debt

An amount of money borrowed by one party from another, to be paid back with interest.

Solvency

The ability of a company to meet its long-term financial obligations and continue operations indefinitely.

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of reporting periods, to identify trends and growth patterns.