Multiple Choice
A bond has a face value of 4,000 dollars.It will pay 400 dollars in interest at the end of every year for the next 40 years.At the time of the final interest payment, 40 years from now, the company that issued the bond will redeem the bond at face value.That is, the company will buy back the bond from its owner at a price equal to the face value of the bond.If the interest rate is 10% and is expected to remain at 10%, how much would a rational investor pay for this bond right now?
A) More than any of the amounts below.
B) 20,000 dollars
C) 16,000 dollars
D) 4,000 dollars
E) Less than any of the above amounts.
Correct Answer:
Verified
Correct Answer:
Verified
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