Assume That You Are Considering the Purchase of a $1,000

question 27

Multiple Choice

Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $70 each six months and has 10 years to go before it matures.If you buy this bond,you expect to hold it for 5 years and then to sell it in the market.You (and other investors) currently require a simple annual rate of 16 percent,but you expect the market to require a rate of only 12 percent when you sell the bond due to a general decline in interest rates.How much should you be willing to pay for this bond?

• A) $842.00
• B) $1,115.81
• C) $1,359.26
• D) $966.99
• E) $731.85

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Definitions:

Special Test for Qualifying Child

Criteria established by tax authorities to determine if a child is eligible for tax benefits, focusing on relationship, age, residency, and support.

Gross Income Test

A criterion used to determine if someone can be claimed as a dependent based on their income level.

Relationship Test

Criteria used in tax law to determine eligibility for filing status, dependent deductions, and other tax-related considerations based on familial relations.

Dependent Taxpayer Test

Criteria used to determine whether a taxpayer can claim another person as a dependent, including relationship, residency, and support tests.