You Are the Owner of 100 Bonds Issued by Euler

question 67

Multiple Choice

You are the owner of 100 bonds issued by Euler, Ltd. These bonds have 8 years remaining to maturity, an annual coupon payment of $80, and a par value of $1,000. Unfortunately, Euler is on the brink of bankruptcy. The creditors, including yourself, have agreed to a postponement of the next 4 interest payments (otherwise, the next interest payment would have been due in 1 year) . The remaining interest payments, for Years 5 through 8, will be made as scheduled. The postponed payments will accrue interest at an annual rate of 6 percent, and they will then be paid as a lump sum at maturity 8 years hence. The required rate of return on these bonds, considering their substantial risk, is now 28 percent. What is the present value of each bond?

• A) $538.21
• B) $426.73
• C) $384.84
• D) $266.88
• E) $249.98

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Definitions:

Diels-Alder Reaction

A chemical reaction between a conjugated diene and a substituted alkene (dienophile) to form a cyclohexene derivative, often used in the synthesis of complex natural products.

Cyclization

A chemical reaction that transforms a linear molecule into a cyclic one by forming a ring structure.

Thermal Conditions

Refers to the temperature and heat-related circumstances affecting or controlling a process or reaction.

Symmetry-Allowed

In quantum chemistry, a process or transition is symmetry-allowed if it does not violate symmetry rules governing molecular transformations.