19) Which of the following are true concerning the distinction between interest rates and return?A) The rate of return on a bond is expected but the interest rate is unexpected.B) The rate of return will be larger than the interest rate when bond price falls between timet and t+1.C) The return can be expressed as the sum of the current yield and the rate of capital gains.D) All of the above.

Interest rates refer to the proportion of the loan which is to be paid by the borrower to the lender…

Answered: A) The rate of return on a bond is…

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A) The rate of return on a bond is expected but the interest rate is unexpected.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

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Concept explainers

Debenture Valuation

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

Question

19) Which of the following are true concerning the distinction between interest rates and return?
A) The rate of return on a bond is expected but the interest rate is unexpected.
B) The rate of return will be larger than the interest rate when bond price falls between timet and t+1.
C) The return can be expressed as the sum of the current yield and the rate of capital gains.
D) All of the above.

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Which of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.
Which one of the following statements about the term structure of interest rates is true? A) The expectations hypothesis predicts a flat yield curve if anticipated future short-term rates exceed current short-term rates. B) The liquidity premium theory contends that lenders prefer to buy securities at the ghort-term end of the curve. C) The expectations hypothesis contends that the long-term spot rate is equal to the short-term rate. D) The liquidity premium theory indicates that, all else being equal, longer maturity bonds will have lower yields.
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