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Based on the following information, calculate the expected return of an investment:
- Probability of a 10% return: 0.4
- Probability of a 5% return: 0.3
- Probability of a -2% return: 0.3
What is the expected return?
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7. Receivables and Investments
Introduction to Investments in Securities
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Which of the following statements best describes the 'Bridge Bonds Series A dated 7-15-2005 4.375% due 7-15-2055 @100.00'?
A
They are bonds issued on July 15, 2055, with a 4.375% annual coupon rate, maturing on July 15, 2005, and originally issued at a premium (\$100.00).
B
They are bonds issued on July 15, 2005, with a 4.375% annual coupon rate, maturing on July 15, 2055, and originally issued at a variable price.
C
They are bonds issued on July 15, 2005, with a 4.375% annual coupon rate, maturing on July 15, 2055, and originally issued at a discount (\$100.00).
D
They are bonds issued on July 15, 2005, with a 4.375% annual coupon rate, maturing on July 15, 2055, and originally issued at par (\$100.00).
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Step 1: Understand the terminology used in the bond description. Bonds typically include details such as the issue date, coupon rate, maturity date, and issue price. The issue date is when the bond was first sold, the coupon rate is the annual interest rate paid to bondholders, the maturity date is when the bond principal is repaid, and the issue price is the price at which the bond was originally sold.
Step 2: Analyze the bond description provided: 'Bridge Bonds Series A dated 7-15-2005 4.375% due 7-15-2055 @100.00'. This indicates the bond was issued on July 15, 2005, has a coupon rate of 4.375%, matures on July 15, 2055, and was issued at a price of \$100.00.
Step 3: Interpret the issue price of \$100.00. Bonds issued at \$100.00 are typically described as being issued 'at par,' meaning the issue price is equal to the bond's face value.
Step 4: Compare the given options to the bond description. The correct statement should match the details provided: issued on July 15, 2005, with a 4.375% annual coupon rate, maturing on July 15, 2055, and issued at par (\$100.00).
Step 5: Eliminate incorrect options based on the analysis. For example, bonds issued on July 15, 2055 or issued at a discount or premium do not match the description provided. Select the option that accurately reflects the bond details.
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