1. Pierre Dupont just received a cash gift from his grandfather. He plans to inv
ID: 2660776 • Letter: 1
Question
1. Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 4.83 percent. If the current market rate is 6.00 percent, what is the maximum amount Pierre should be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.)
2. Zero coupon bonds sell well above their par value because they offer no coupons. True or False?
3. Bonds sell at a premium over the par value when market rates for similar bonds are
greater than the bond's coupon rate.
Market rates are irrelevant in determining a bond's price.
equal to the bond's coupon rate.
less than the bond's coupon rate.
Pierre should pay $Explanation / Answer
1.
Price= 48.3PVIFA(6%,5)+1000PVIF(6%,5)
Price= $950.72
2. FALSE, since Zero coupon bonds sell well below their par value(at a deep discount), because they offer no coupons
3.
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