Question

1) Kyle B purchased a bond for $1,136.31 today. The bond has a 4.29% coupon rate. At the end of one year, just after you received the coupon, you decide to sell the bond. The best bid for your bond is $1,098.39. If you accept the best bid, what will your return be? (Express as a %, not a decimal. If your answer is 10%, just enter 10)

2) What is the cause of the Time Value of Money? Why is receiving $100 today not the same as receiving $100 tomorrow?

	A.	Due to the existence of demand and supply of purchasing power
	B.	Finance PhDs believe that saving money for tomorrow is more moral than spending it today. Hence, they are proselytizing their beliefs to young and impressionable college-going graduates so that more people act and behave like them.
	C.	Texas Instruments wants to sell their calculators and successfully lobbied for including Time Value of Money in Finance education
	D.	The Constitution of the US guarantees the right to demand interest from the Federal Reserve that is equal to or greater than the inflation rate.

Answer 1

1) Kyle B purchased a bond for $1,136.31 today. The bond has a 4.29% coupon rate. At the end of one year, just after you received the coupon, you decide to sell the bond. The best bid for your bond is $1,098.39. If you accept the best bid, what will your return be? (Express as a %, not a decimal. If your answer is 10%, just enter 10)

Rate of return = ((Sell Value + Coupon) / Purchase value) - 1

Rate of return = ((1098.39 + 1000*4.29%) / 1136.31) - 1

Rate of return = 0.44%

2) What is the cause of the Time Value of Money? Why is receiving $100 today not the same as receiving $100 tomorrow?

Option A Due to the existence of demand and supply of purchasing power

Because the value of a good purchased to day will cost more in future due to inflation in the economy which makes the value of money falling in future when compared with today even if the absolute value is same

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