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Question
Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%, a face value of $1,000, and a maturity date of January 1, 2025. Which of the following statements is MOST correct?A) Because both Fred and Ethel will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond.
B) If Fred decides to buy the bond, then Ethel will also decide to buy the bond, if markets are efficient.
C) Fred and Ethel will only buy the bonds if the bonds are rated BBB or above.
D) Fred may determine a different value for a bond than Ethel because each investor may have a different level of risk aversion, and hence a different required return.
Answer
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