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John and Karen Are Both Considering Buying a Corporate Bond

Question 70

Multiple Choice

John and Karen are both considering buying a corporate bond with a coupon rate of 8%,a face value of $1,000,and a maturity date of January 1,2025.Which of the following statements is most correct?


A) Because both John and Karen will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond.
B) If John decides to buy the bond, then Karen will also decide to buy the bond, if markets are efficient.
C) John and Karen will only buy the bonds if the bonds are rated BBB or above.
D) John may determine a different value for a bond than Karen because each investor may have a different level of risk aversion, and hence a different required return.

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