Given the Opportunity to Invest in One of the Three

question 52

Essay

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

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Definitions:

Controllable Margin

The portion of profit or margin that can be directly influenced by managing the controllable costs in a business.

Operating Results

The financial outcomes of a company's core business activities, excluding non-operating revenues and expenses, reflecting its operational efficiency.

Required Rate of Return

The minimum annual percentage return an investor expects to earn when investing in a particular asset or project.

Sales Revenue

The income received by a company from its sales of goods or the provision of services.