When an investor buys a previously issued bond whose stated interest rate is bel
ID: 2784589 • Letter: W
Question
When an investor buys a previously issued bond whose stated interest rate is below current market rates the price paid is likely to be
d. the par value.
If you want to know the annual interest to be sent to the holder of a corporate bond, multiply the face amount by the
d. market rate.
To estimate the current value or selling price of a bond,
a. at a premium from the face value. b. at a discount from the face value. c. the face value.d. the par value.
If you want to know the annual interest to be sent to the holder of a corporate bond, multiply the face amount by the
a. coupon rate. b. tax-exempt yield. c. yield to maturity.d. market rate.
To estimate the current value or selling price of a bond,
a. multiply the face value by the market interest rate. b. divide the face value by the market interest rate. c. divide the annual interest income in dollars by the coupon rate. d. add the present value of the future interest to be received to the present value of the face amount of the bond.Explanation / Answer
1.
The relationship between price of bond and market interest rate is inverse. That is when interest rate rise, price of bond decrease and when interest rate falls bond price increase. So, When an investor buys a previously issued bond whose stated interest rate is below currentmarket rates the price paid is likely to be at a premium from the face value..
Option (A) is correct answer.
2.
Annual Interest rate on bond is calculated by Multiplication of face value of bond and coupon rate.
Option (A) is correct answer.
3.
To estimate the current value or selling price of a bond, add the present value of the future interest to be received to the present value of the face amount of the bond.
Option (D) is correct answer.
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