Given the Opportunity to Invest in One of the Three

question 60

Essay

Given the opportunity to invest in one of the three bonds listed below,which would you purchase?
Assume an interest rate of 7%.
$\begin{array}{|l|l|l|l|}\hline \text { Bond } & \text { Face Value } & \text { Armual Coupon Rate } & \text { Maturity Price } \\\hline \text { A } & € 1,000 & 4 \% & 1 \text { year } € 990 \\\hline \text { B } & € 1,000 & 7.5 \% & 17 \text { years } € 990 \\\hline C& € 1,000 & 8.5 \% & 25 \text { years } € 990\\\hline\end{array}$ C.If funds remain,one may purchase Bond C also since both Bonds B and C are underpriced.

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Definitions:

Investment

Allocating resources, usually money, with the expectation of earning an income or profit.

Term Deposits

Fixed-term savings accounts that typically offer higher interest rates, where money is locked in for a certain period.

Surplus Funds

Excess money or assets that remain after all expenses have been paid.

Maturing

The process by which a financial instrument reaches its due date and the principal is required to be repaid.