Suppose Alex Purchases a 10-Year,zero-Coupon Bond with a Yield to Maturity

question 45

Multiple Choice

Suppose Alex purchases a 10-year,zero-coupon bond with a yield to maturity of 7.5% and face value of $10,000.If he sold it 3 years later,what would be the rate of return of his investment,given that the yield to maturity is now 6%?

• A)7.72%
• B)6%
• C)1.5%
• D)11.08%
• E)13.5%

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Definitions:

Marginal Productivity

Refers to the increase in output that arises from an additional unit of input, assuming all other factors of production remain constant.

Marginal Productivity Theory

An economic theory suggesting that payment to factors of production equates to their marginal contribution to the output.

Value Added

The increase in the value of a product or service as a result of a particular process, typically measured as the difference between the cost of inputs and the price it's sold for.

Profit-Maximizing

A strategy or point whereby a firm selects the output level at which its profits are at their highest.