Corporate Bond a Returns 5 Percent of Its Cost in PV

question 24

Multiple Choice

Corporate Bond A returns 5 percent of its cost in PV terms in each of the first five years and 75 percent of its value in the sixth year. Corporate Bond B returns 8 percent of its cost in PV terms in each of the first five years and 60 percent of its cost in the sixth year. If A and B have the same required return,which of the following is/are true?
I. Bond A has a bigger coupon than Bond B.
II. Bond A has a longer duration than Bond B.
III. Bond A is less price-volatile than Bond B.
IV. Bond B has a higher PV than Bond A.

• A)III only
• B)I,III,and IV only
• C)I,II,and IV only
• D)II and IV only
• E)I,II,III,and IV

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Definitions:

Trait Inherited

A characteristic or attribute that is genetically passed from parents to their offspring.

Faith Development

The process of growth and change in one’s spiritual beliefs, values, and practices throughout the lifespan, often influenced by personal experiences and external factors.

Ultimate Truth

A concept or belief representing an absolute reality that transcends relative, subjective experiences.

Individuative-Reflective

A stage of faith development proposed by James Fowler where an individual critically examines their beliefs and values, leading to a more personal and internalized faith.