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:

Markup

The additional sum included in the purchase price of items to account for overhead costs and profit, which establishes the retail price.

Demand-Based Concept

A pricing strategy where prices are set based on consumer demand, often leading to dynamic pricing models.

Market Price

The current price at which an asset or service can be bought or sold.

Variable Cost Concept

The principle stating that costs change in proportion to changes in volume of activity or production.