You Are in Possession of a Bond That Has 3

question 20

Multiple Choice

You are in possession of a bond that has 3 years remaining to maturity.The original maturity on the bond was 30 years.The bond has a $1,000 face value and a 9% coupon rate.If interest is paid annually and bonds with similar risk currently have an interest rate of 10%,what is the current value of the bond?

• A) $906
• B) $975
• C) $1,000
• D) $1,025
• E) $1,103

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Definitions:

High-low Method

The high-low method is a straightforward way to estimate the variable and fixed components of a cost by using the highest and lowest activity levels and the corresponding total costs.

Machine Hour

A unit of measurement that represents an hour of operation of a machine or equipment.

Fixed Costs

Expenses that do not change in proportion to the level of production or sales, such as rent and salaries.

High-low Method

A technique used in accounting and finance to estimate fixed and variable costs based on the highest and lowest levels of activity.