Question: Suppose that a 30-year U.S. Treasury bond offers a 4% coupon rate, paid semiannually. The market price of the bond is $1,000, equal to its

Suppose that a 30-year U.S. Treasury bond offers a 4% coupon rate, paid semiannually. The market price of the bond is $1,000, equal to its par value.

a. What is the payback period for this bond?

b. With such a long payback period, is the bond a bad investment?

c. What is the discounted payback period for the bond assuming its 4% coupon rate is the required return? What general principle does this example illustrate regarding a project’s life, its discounted payback period, and its NPV?

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