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Submi

Consider a $5-$year $$1,000$ face value note that has a $5\mathrm{.}5$ percent coupon, paid semi$-$annually. Should you buy this note if the market$-$required rate of return is $6\mathrm{.}5$ percent and the market price is $$940?$

Multiple Choice

No$,$ because the market price of the note is lower than the face value of the note; the note is discounted.

Yes, because the note is currently trading at fair market value.

No$,$ because the market price of the note is higher than the fair market value of the note; the note is overpriced.

Yes, because the market price of the note is lower than the face value of the note, and discount notes provide higher interest payments than the market requires.

Yes, because the market price of the note is lower than the fair market value of the note; the note is underpriced.