You Are Considering Investing in a Zero-Coupon Bond That Will

question 46

Multiple Choice

You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the internal rate of return (IRR) for investing in this bond is closest to:

• A)12%
• B)8.0%
• C)7.5%
• D)10%
• E)9%

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Definitions:

Operating Costs

Expenses associated with the operation of a business, including costs of goods sold and administrative expenses.

Annual Cash Inflows

The total amount of money, often from sales, investments, or financing, that flows into a company over a year.

Discount Rate

The interest rate used to discount future cash flows of a financial instrument, in order to determine its present value.

Salvage Value

The expected end-of-life residual value of an asset.