Assume the following facts: a 10-yr bond, callable at 980 after 2 yrs, face value of 1000, priced to sell at 11% required rate of return, and pays a coupon of 10% (paid semiannually).  The bond is valued today at 940.25.  The problem with this valuation is that   A. it assumes all cash flows are known with certainty   B. it assumes all cash flows are not known with certainty   C. it does not assume any reinvestment rate   D. the bond should be selling at a premium

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
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Assume the following facts: a 10-yr bond, callable at 980 after 2 yrs, face value of 1000, priced to sell at 11% required rate of return, and pays a coupon of 10% (paid semiannually).  The bond is valued today at 940.25.  The problem with this valuation is that

  A.

it assumes all cash flows are known with certainty

  B.

it assumes all cash flows are not known with certainty

  C.

it does not assume any reinvestment rate

  D.

the bond should be selling at a premium 

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