Your Client Has Been Offered a 5-Year,$1,000 Par Value Bond

question 115

Multiple Choice

Your client has been offered a 5-year,$1,000 par value bond with a 10 percent coupon.Interest on this bond is paid quarterly.If your client is to earn a simple rate of return of 12 percent,compounded quarterly,how much should she pay for the bond?

• A) $800
• B) $926
• C) $1,025
• D) $1,216
• E) $981

---

Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without increasing its leverage or equity.

Dividend Payout Ratio

The fraction of net earnings a firm pays out to its shareholders in dividends, indicating how much money a company returns to shareholders versus reinvesting.

Financial Statement

An official documentation detailing the fiscal transactions and status of a company, individual, or another entity.

Retention Ratio

The portion of net income that is retained by a corporation rather than distributed to its shareholders as dividends.