A Person Buys a Bond with a Face Value of $10,000

question 56

Multiple Choice

A person buys a bond with a face value of $10,000 for $9,325.Each year until the maturity date the bond buyer receives $750 from the issuer of the bond.The yield on the bond is

• A) 8.04 percent.
• B) 7.5 percent.
• C) 10.0 percent.
• D) 6.75 percent.
• E) There is not enough information to answer the question.

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Definitions:

Risk-Adjusted Rate

A rate of return that has been adjusted to take into account the risk or volatility of the investment, providing a more accurate measure of its potential reward.

Risk Aversion

A preference to avoid uncertainty, characterized by investors' tendencies to prefer safer investments over more risky ones.

Portfolio Theory

A financial model that describes how to assemble a diversified portfolio to maximize returns and minimize risk based on expected returns and the variance of each asset.

Capital Budgeting

The process by which investors and managers evaluate the long-term investments and projects of a company in terms of their potential profitability and benefits.