What Is the Expected Rate of Return on a Bond

question 28

Multiple Choice

What is the expected rate of return on a bond that matures in 5 years,has a par value of $1,000,a coupon rate of 11.5%,and is currently selling for $982? Assume annual coupon payments.

• A) 12.5%
• B) 12.0%
• C) 12.7%
• D) 13.4%

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Definitions:

Liability

Refers to financial obligations or debts that a company or individual owes to others, which must be settled over time through the transfer of economic benefits.

Equity Item

A component of a company's equity section on the balance sheet, representing ownership interests or claims on assets after liabilities are settled.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, reflecting the company's financial condition.

Convertible Securities

Convertible Securities are financial instruments, such as bonds or preferred stocks, that can be converted into a specified number of other securities, typically common stock, at the option of the holder or issuer.