You Are Offered a $1,000 Par Value Bond Which Has

question 91

Multiple Choice

You are offered a $1,000 par value bond which has a stepped-up coupon interest rate.The annual coupon rate is 10 percent coupon,payable semiannually ($50 each 6 months) for the first 15 years,and then the annual coupon increases to 13 percent,also payable semiannually,for the next 15 years.The first interest payment will be made 6 months from today,and the $1,000 principal amount will be returned at the end of Year 30.You currently have savings in an account which is earning a 9 percent simple rate,but with quarterly compounding;this is your opportunity cost for purposes of analyzing the bond.What is the value of the bond to you today?

• A) $1,614.53
• B) $1,419.18
• C) $1,306.21
• D) $1,250.25
• E) $1,155.98

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Definitions:

Government Revenue

Income received by the government from taxes and other sources used to fund public services and projects.

Tariff

A tax imposed by a government on goods and services imported from other countries, used to control trade and protect domestic industries.

Sugar

A sweet-flavored substance derived primarily from sugarcane and sugar beet, used chiefly as an ingredient in food and beverages.

Equivalent Imports

Goods or services brought into a country that serve the same purpose as locally produced goods or services.