Julie Owns a Bond with a $1000 Par Value

question 11

Multiple Choice

Julie owns a bond with a $1000 par value. If she decides to sell her bond on the secondary market before the maturity date, what might be the result?

• A) She could receive more or less than $1000, because the market price of bonds is free to fluctuate.
• B) She will receive exactly $1000, because that is the guaranteed value of the bond.
• C) She will receive more than $1000, because the bond will pay interest to the buyer, making it an attractive investment.
• D) She will receive less than $1000, because the only time the bond is worth the full par value is at maturity.

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Definitions:

Average Investment

An approach in accounting that calculates the mean value of various investments held by an entity over a specific period of time.

Capital Investment Analysis

The process of evaluating and comparing potential investments or projects based on their expected returns, costs, and strategic fit with the organization's objectives.

Cash Payback Method

A capital budgeting technique that calculates the length of time required to recoup the original investment through cash flows.

Cash Payback Period

A method of evaluating a capital investment proposal that focuses on the expected period of time between the date of an investment and the recovery in cash of the amount invested.