A Bond Pays 7% Yearly Interest in Semi-Annual Payments for 10

question 3

Multiple Choice

A bond pays 7% yearly interest in semi-annual payments for 10 years. The current yield on similar bonds is 9%. To determine the market value of this bond, you must

• A)find the interest factors (IFs) for 20 periods at 9%.
• B)find the interest factors (IFs) for 10 periods at 7%.
• C)find the interest factors (IFs) for 10 periods at 4.5%.
• D)find the interest factors (IFs) for 20 periods at 4.5%.

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Definitions:

Market Risk Premium

The additional return an investor demands for taking on the risk of investing in the stock market over a risk-free rate.

Beta

A measure of the volatility, or systematic risk, of a security or portfolio compared to the entire market.

Portfolio P

This term typically represents a specific set of investments held by an individual or organization, potentially including stocks, bonds, and other assets.

Required Return

The minimum return an investor expects to achieve by investing in a particular asset, taking into account its risk level.