1. You have an interest in a typical US corporate bond that pays a 5.0% coupon rate and has exactly 7 years until maturity. Your opportunity cost of invested funds is 10.0%. What is the most you would pay for this bond?
a) about $752.53
b) about $1,000.00
c) about $795.54
2. With market rates generally low, you are searching for a bond investment that pays a higher than usual income. You find one with a coupon rate of 6.5%. It matures in 12 years and is priced right now at $1,205.62. If you buy this bond and hold it for the full 12 years, what is your annual return on investment?
a) about 4.29%
b) about 2.14%
c) about 5.30%