If the required rate of return is 7.2%, no such security shall be purchased.
<h3>What does the required rate of return mean?</h3>
The required rate of return is the expected percentage of returns on investment at the time the investment is made. The required rate of return, in this case, is 7.2%.
The actual returns earned from purchasing the security for $8000 and receiving returns of $3600 are calculated to be around a 3.6% return.
As a result, if the required rate of return on investment is 7.2%, the security should not be purchased.
Read more about the required rate of return here:
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Answer:
True
Explanation:
STRIPS are zero coupon bonds, and the advantage of them is that they allow an investor to know exactly how much money they will receive at a future date.
The investor purchases the STRIPS at a discount value, which we are not told here. E.g. assuming that the discount rate is 5% (similar to (4), the price of the STRIPS = $50,000 / (1 + 5%)⁶ = $37,311.
The maker. Hope this helps. :)
