Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. 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% 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?
Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. 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% 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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. 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% coupon rate is the
required return? What general principle does this example illustrate regarding a project’s
life, its discounted payback period, and its
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