You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $1, 000 par value bond for $800.The coupon rate is 10% (with annual payments), and there are 10 years before the bond will mature and pay off its $1, 000 par value.You should buy the bond if your required return on bonds with this risk is 12%.

Question

Quizplus · Accepted Answer

the bonds expected return (YtM)is 13.81%, which exceeds the 12% required return, so buy the bond.

You Have Funds That You Want to Invest in Bonds