If the Discount Rate on a Bond Is 7 Percent

question 41

Multiple Choice

If the discount rate on a bond is 7 percent and the expected payment in year 1 is $952.50, calculate the price of the bond.

• A)$1,050
• B)$985
• C)$890
• D)$935

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Definitions:

Coupon Yield

The annual interest rate paid on a bond's face value, indicating the amount of interest received by bondholders annually.

Common Stock

Equity ownership in a corporation, where shareholders have voting rights and potentially receive dividends.

Capital Gains Rate

The capital gains rate is the tax rate applied to profits from the sale of assets or investments, which can vary based on the asset's holding period and the taxpayer's income level.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its share price, used by investors to evaluate the return on a dividend-paying stock.