USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 62

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold a 25-year, Aa 10-percent coupon bond priced to yield 12 percent. As a swap candidate, you are considering a 25-year, Aa 10 percent coupon bond priced to yield 13 percent. Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year workout period.

-Refer to Exhibit 13.9. The dollar investment in the candidate bond is

• A) $1515.36.
• B) $853.50.
• C) $780.46.
• D) $779.13.
• E) $877.53.

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Definitions:

Elasticity Measures

refer to the quantitative analysis of changes in economic variables in response to changes in other variables, such as price or income.

Income Elasticity

A measure of how the demand for a good changes in response to a change in consumers' income.

Confederate Currency

The currency issued by the Confederate States of America during the American Civil War, now considered a collectible item.

Market Price

The prevailing rate at which a good or service is available for purchase or sale in the public market.