Question

A $ 10,000 bond is purchased that pays premiums at a rate of 6% compounded semi-annually and matures in two years. He pays $ 9,600 for the instrument. Which of the following subsections is true regarding the bond?

-The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 9,900 and the bond would have a rate of return of less than 10%.
-The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 10,300 and the bond would have a rate of return greater than 10%.
-The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 10,300 and the bond would have a rate of return of less than 10%.
-The corresponding cash flows will be: Period 0: $ 9,600, Period 1: $ 300, Period 2: $ 300, Period 3: $ 300, Period 4: $ 9,900 and the bond would have a rate of return greater than 10%.

Answer 1