A Five-Year Bond Has a $1,000 Par Value Bond, a 12

question 57

Multiple Choice

A five-year bond has a $1,000 par value bond, a 12 percent coupon, and a yield to maturity of 8 percent. Interest is paid semiannually. The bond's price is

• A) $864.65.
• B) $1081.78.
• C) $852.80.
• D) $1162.22.
• E) $1785.35.

---

Definitions:

Accounting Rate of Return

The accounting rate of return (ARR) is an accounting metric that measures the profitability of an investment by dividing the average annual profit by the initial investment cost.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of shareholders' wealth maximization.

Time Value of Money

A financial principle that posits money available now is worth more than the same amount in the future due to its potential earning capacity.

Hurdle Rate

A financial metric indicating the minimum return on investment required for a project or investment to be considered acceptable.