20. Which of the following statements is CORRECT? a. The total return on a bond

Question

20. Which of the following statements is CORRECT?

a. The total return on a bond during a given year is based only on the coupon interest payments received.

b. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of similar risk is 8%.

c. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains constant.

d. For a given firm, its debentures are likely to have a lower yield to maturity than its mortgage bonds.

e. When large firms are in financial distress, they are almost always liquidated, whereas smaller firms are generally reorganized.

Explanation / Answer

C is correct. As bonds move to maturity they tend to their par value. Discount bonds have a price lower than par value and thus should increase over time as they tend to maturity.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.