Rashard Bought Four Bonds with Face Values of $1,000 Each

question 14

Multiple Choice

Rashard bought four bonds with face values of $1,000 each, a simple interest rate of 5.4% per year,
And a maturity date 10 years after they were issued. He paid $4,725 three years after the bonds were
Issued. If he keeps the bonds until maturity, find his total profit, and his percent return per year.

• A)$1,435; 3.0% per year
• B)$6,160; 18.6% per year
• C)$1,435; 4.3% per year
• D)$6,160; 13.0% per year

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Definitions:

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period, eroding purchasing power.

Lintner

Lintner refers to John Lintner, an economist known for his work on the dividend policy of firms and contributions to the capital asset pricing model (CAPM).

Miller and Scholes

Refers to Merton Miller and Myron Scholes, economists recognized for their work in finance, including the development of the Black-Scholes model for option pricing.