1) A U.S. Treasury discount bond has a face value of $1,050 and is selling for $1,000 in the bond market today. A corporation issues an identical discount bond with the same face value. The risk premium on the corporation bond is 20 percent. As a result the market value of the corporation bond is ..... dollars.
2) A corporation's discount bond promises to pay $1,150 next year and is selling for $1,000 in the bond market today. The same corporation wants to issue another identical discount bond that promises to pay $2,100 next year. This second bond's price in the market will equal ...... dollars.
3) Bond A and Bond B are exactly identical in terms of risk, liquidity, and any other attribute. For example, they are two one-year bonds issued by the same corporation. Bond A is expected to pay $1,403 next year and Bond B is expected to pay $168,360 next year. Which of the following pairs of prices are consistent with the attributes of these two bonds?
A. Price of Asset A = $1,155 & Price of Asset B = $138,500
B. Price of Asset A = $1,150 & Price of Asset B = $138,000
C. Price of Asset A = $1,170 & Price of Asset B = $134,000
D. Price of Asset A = $1,160 & Price of Asset B = $140,000