Mirtha Mudflat Has Sufficient Funds to Choose One of Two

question 7

Multiple Choice

Mirtha Mudflat has sufficient funds to choose one of two investments. The same amount will be invested in either case. Choice one: ten year $100,000 5% Treasury bonds issued to yield 4% per annum, the market rate. Choice two: a risky bond of the same amount that has expected cash flows of $9,000 per year for the same period. What is the issue price of the Treasury bond?

• A)$100,000
• B)$108,110
• C)$92,278
• D)$125,000
• E)None of the above

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Definitions:

Brightness

The perception of how luminous an object appears, determined by the amount of light it emits or reflects.

Fovea

A small depression in the retina of the eye where visual acuity is highest.

Rods

Photoreceptor cells in the retina of the eye that are responsible for vision at low light levels but do not mediate color vision.

Cones

Photoreceptor cells in the retina of the eye responsible for color vision and functioning best in relatively bright light.