Question
Evans buys a $ 10,000 bond that pays premiums at a 6% rate compounded semi-annually and matures in two years. He pays $ 9,600 for
Evans buys a $ 10,000 bond that pays premiums at a 6% rate compounded semi-annually and matures in two years. He pays $ 9,600 for the instrument. Which of the following subsections is true regarding the bond?
Select one: a. The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 10,300 and the bond would have a rate of return greater than 10%. b. The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 10,300 and the bond would have a rate of return of less than 10%. c. Neither of the above is correct. d. The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 9,900 and the bond would have a rate of return greater than 10%. e. The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 9,900 and the bond would have a rate of return of less than 10%.
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