Consider a Bond Which Pays 8% Semiannually and Has 8

question 24

Multiple Choice

Consider a bond which pays 8% semiannually and has 8 years to maturity. The market requires an interest rate of 10% on bonds of this risk. What is this bond's price?

• A) $530.58
• B) $891.62
• C) $893.30
• D) $3129.17
• E) None of these.

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Definitions:

Indirect Method

A method often used in cash flow statements to convert net income into net cash flow from operating activities by adjusting for non-cash transactions and changes in working capital.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue, also known as net earnings or net profit.

Noncash Expense

Expenses that do not directly result in a physical outflow of cash but are recorded in the accounting records, such as depreciation.

Depreciation

The methodical distribution of the expense of a physical asset across its lifespan.