You have just noticed in the financial pages of the local newspaper that you can buy a bond ($1,000 par) for $800.
If the coupon rate is 10 percent, with annual interest payments, and there are 10 years to maturity, should you make the purchase if your required return on investments of this type is 12 percent?

Question

Quizplus · Accepted Answer

The bond is being sold at a discount ($800 instead of the $1,000 par value), which means a higher yield for the investor. The coupon rate of 10% is higher than the required return of 12%, further increasing the attractiveness of the investment. Therefore, it would be beneficial to purchase this bond.

You Have Just Noticed in the Financial Pages of the Local