Jacobee Inc. is planning to offer a $1,000 par value 12-year maturity bond with

Question

Jacobee Inc. is planning to offer a $1,000 par value 12-year maturity bond with a coupon interest rate that changes every 4 years. The coupon rate for the first four years is 10 percent, 12 percent for the next 4 years, and 14 percent for the final 4 years. If you require a 11 percent rate of return on a bond of this quality and maturity, what is the maximum price you would pay for the bond? (Assume interest is paid annually at the end of each year.)                                                

$921.31
                                         $1200.16
                                         $852.34

                                         $1,029.80

The expected return for Asset T is 20%, and it has a standard deviation of 4%. The expected return for Asset S is 40%, and it has a standard deviation of 7%. Which of the following is a CORRECT statement?                                                           

Asset T is the less risky investment of the two investments.
                                         Asset S is the less risky investment of the two investments.

Explanation / Answer

Using a financial calculator 1,029.80
Standard deviation is the usual method of assessing risk, so asset T would be the less risky since it has the smaller standard deviation.

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