A bond is a financial asset where the issueris obliged to pay a bond holder interest at specified intervals (the coupon) and/or to repay the principal at a specified future date (the maturity date).pays a rate of return (interest) that fluctuates with market conditions.receives regular payments from the bond holder determined at a market rate at the time of payment.pays a higher rate of return (yield) as the price of the bond rises.

In the financial market, people make an exchange of money in terms of various moentary instruments…

A bond is a financial asset where the issuer O is obliged to pay a bond holder interest at specified intervals (the coupon) and/or to repay the principal at a specified future date (the maturity date). O pays a rate of return (interest) that fluctuates with market conditions. O receives regular payments from the bond holder determined at a market rate at the time of payment. O pays a higher rate of return (yield) as the price of the bond rises.

A bond is a financial asset where the issuer O is obliged to pay a bond holder interest at specified intervals (the coupon) and/or to repay the principal at a specified future date (the maturity date). O pays a rate of return (interest) that fluctuates with market conditions. O receives regular payments from the bond holder determined at a market rate at the time of payment. O pays a higher rate of return (yield) as the price of the bond rises.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter27: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 6CQ

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Interest rate risk; a. is the risk that a bond's coupon rate may change over time b. is lesser for bonds with a longer term as compared to bonds with a shorter term c. is zero on the date of maturity of a bond d. is the risk that the market interest rate may remain constant
True or False: With a discount bond, the return on a bond is equal to the rate of capital gain. A. True: A discount bond has no coupon payments so the return on the bond is equal to the rate of capital gain. B. False: Bond returns can never equal the rate of capital gain; there must be a capital loss or gain indicated. C. True: A discount bond pays fixed interest payments every year so the return is equal to the rate of capital gain. D. There is no way to determine this without the knowing the coupon amount and interest rate.
Interest rate risk refers to changes in the bond's ___________ (coupon rate, credir rating, par value, or yield to maturity) , whereby a decrease in that item causes bond values to _______________ (increase, decrease, remain constant, or vary randomly)
A bond provides a fixed return on the buyer’s investment. True or false
Which of the following is TRUE about bonds? *a. If the bond price is greater than its par value, the bond is discounted.b. None of the choices.c. If the bond price is greater than its par value, the bond is traded at a premium.d. Coupon rates are always higher than the market rate.
An agent (a financial institution or individual financial investor) that has agreed to deliver a specific asset (as yet unpossessed) to another party at a future date has:A. taken a long position.B. hedged against risk.C. entered a forward transactionD. taken a short positionE. bought an option.
What is a bond? A certificate representing a loan from an investor to a corporation or government entity that makes fixed payments for a set time and eventually pays back the loan in full. A certificate of ownership in a corporation with the right to a percentage of the earnings. A payment for an investor to a corporation for the rights to future profits. A group of stocks sold together for a set price.
You have a bond that pays $125 per year in coupon payments. Which of the following would result in an increase in the price of your bond? A. Coupon payments on newly-issued bonds rise to $140 per year. B. The likelihood that the firm issuing your bond will default on debt increases. C. The price of a share of stock in the company falls. D. Coupon payments on newly-issued bonds fall to $75 per year
Which of the following is TRUE for a coupon bond? Select one: a. The yield to maturity is greater than the coupon rate when the bond price is above the par value. b. The price of a coupon bond and the yield to maturity are positively related. c. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate d. The yield is less than the coupon rate when the bond price is below the par value
Interest-rate risk results from: Answer a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual's investment horizon and a bond's maturity d. The fact that most people hold bonds until they mature
Bonds issued by corporations and exposed to default risk are classified as A. corporation bonds B. default bonds C. risk bonds D. zero risk bonds
Rohan decides to invest in bonds instead of stocks because he has heard that bonds are a lower-risk investment. He uses the bond's credit rating to make his investment decisions. Which of the following is true about the risk Rohan faces with his decision? The bonds' value is not affected by inflation because most bonds pay a fixed coupon rate over time. The credit ratings of the bond-issuing companies will not change from one year to the next. The bond issuer may not pay him back because it may go bankrupt or become insolvent. If Rohan chooses bonds from a company with low credit ratings, he's almost certain to have low default risk.