Suppose that a thirty-year U.S. Treasury bond offers a 4 percent coupon rate, paid semiannually. The market price of the bond is $1,000, equal to its par value.
a. What is the payback period for this bond?
b. With such a long payback period, is the bond a bad investment?
c. What is the discounted payback period for the bond, assuming its 4 percent coupon rate is the required return? What general principle does this example illustrate regarding a project's life, its discounted payback period, and its NPV?