What is a bond’s market value when the required rate of return (ie market rate) is less than the coupon rate? The bond’s market value is less than the par value. The bond’s market value is the same as the par value. The bond’s market value is greater than the par value. None of the above.

What is a bond’s market value when the required rate of return (ie market rate) is less than the coupon rate? The bond’s market value is less than the par value. The bond’s market value is the same as the par value. The bond’s market value is greater than the par value. None of the above.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.6: Perpetuities

Problem 2ST

See similar textbooks

Related questions

Q: When a bond sells at a premium: O The contract rate is above the market rate O The contract rate is…

A: Premium is added to the market rate to make it to the contract rate. Premium increases the price of…

Q: If the yield of maturity of the bond is equal the coupon rate, the price of this bond will be? a.…

A: Bond value is the current worth of a bond on the basis of the present value of all the cash flows a…

Q: Explain why the dirty price of a bond might fall sharply before the next coupon is paid?

A: Dirty price of bond include clean price plus accrued interest.

Q: Why do we say a coupon bond can be seen as a package of zero-coupon bonds?

A: A coupon bond is a financial instrument that entails receipt of periodic payments, that is coupon…

Q: What does "bond price elasticity" mean? How does the price elasticity of bonds compare to the yield…

A: The bond price elasticity is a measure which shows the percentage change in the price of the bond…

Q: What is the relationship between the yield to maturity and the price of a bond? They are negatively…

A: Bond is a debt instrument issued by companies and government. It is a fixed income instrument which…

Q: Why does the zero-coupon bond pay no interest?

Q: when the bond price is above par or at a premium?

A: Coupon: Coupon is the annual or semiannual payment will be made by the issuer of the bond to its…

Q: The yield to maturity on a bond is A. below the coupon rate when the bond sells at a discount and…

A: Yield to Maturity : It is the expected rate of return that an investor in the bond may earn on his…

Q: If the risk associated with bonds issued by a particular issuer decreases, how will this affect the…

A: The relationship between price and yield are inverse. If yield increased, the price of the bond will…

Q: One of the points below is the most accurate? a. When a bond sells at a premium, that means that the…

A: Please find the answer to the above question below:

Q: Which of the following is FALSE? A bond is trading at par if its coupon rate equals interest…

A: The price of the bond depends on the interest rates and the coupon rate. The relationship is…

Q: Which of the following statement on bond valuation is correct? A. If bond price is greater than…

A: Bonds are a form of loan or debt that is being taken by the business. Regular interest payments…

Q: which is more sensitive to a change in interest rates, a zero-coupon bond or a 10% coupon bond? Why…

A: Zero-coupon bonds are thought most sensitive to the modification within the value and that they are…

Q: Under what conditions will a discount bond have anegative nominal interest rate? Is it possible for…

A: A discount bond is a bond that is issued for less than its par—or face—value. Discount bonds may…

Q: The following statements describe the general characteristics of price of the coupon bond. Which one…

A: The price of bond = sum of the present value of coupons + present value of face value when the…

Q: Which of the following conditions will increase the interest rate risk on a bond? shorter time to…

A: Interest rate risk is referred to as the potential regarding an investment losses due to the change…

Q: What’s TRUE regarding long-term and short-term bonds (assume they have the same par value and coupon…

A: Interest Rate Risk: It is the chance of a decline in the value of security due to changes in…

Q: This section describes how investors may benefit from zero coupon bonds.

A: Introduction: When a bond is issued below par value and matures at par value, it is called a…

Q: Does it make any difference if the coupon rate on a bond is more than the needed rate of return on…

A: Introduction: Bond prices are determined by the needed rate of return on the bond, and bond prices…

Q: An investor invests in a fixed-rate bond because: His calculated value for the bond is greater…

A: Correct option is (3)- He is happy with the yield of the bond when considering its risk

Q: f a bond’s coupon rate is greater than the investor’s required rate of return on the bond, would the…

A: Prices of bond depend on required rate of return on the bond and the prices of bond changes with…

Q: An option free bond’s value/price has an inverse relationship with interest rates/yield. If yields…

A: Bond valuation refers to a method which is used to compute the current value or present value (PV)…

Q: Which of the following statements is true about bond theorems? ( a. For a given change in the…

A: The bond theorems attempt to establish a relationship between the bond's price, yields, coupon, and…

Q: Which of the following statements is false? A. Other things being equal, an increase in a…

A: A bond is a fixed income instrument, that is used by borrowers to raise money at a certain interest…

Q: A "discount" bond's price is less than it's par value because the coupon rate is less than the yield…

A: When there is a fall in the price of a bond it is said to be selling at a discount to par.A zero…

Q: 1)Which of the following is NOT true regarding bonds?

A: NOTE: As per our policy, we only answer one question when different questions are posted. Therefore…

Q: Given all else equal, if the yield to maturity of a Treasury bond decreases substantially, generally…

A: 1) YTM is Inversely related to Price of the bond i,e when YTM raises/falls, price of the bond…

Q: price of a long-term (longer-maturity) bond more or less sensitive to changes in interest rates than…

A: Long term bonds are more sensitive to change in interest rates than short term bond. If Interest…

Q: We know that a vanilla bond with a coupon rate below the market rate of interest will sell for a…

A: Bond is the debt instrument issued by the borrowers to raise funds from various investors. Usually…

Q: Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends…

A: Yield to maturity formula: YTM =coupon+face value - priceyears to maturityface value + price2

Q: Which of the following claims is true? a. Long-term bonds have lower interest rate risk than…

A: First, we will discuss all the false claims - a) Long-term bonds have lower interest rate risk than…

Q: how will the modified duretion of a floating coupon bond be compared to the modified duration of a…

A: A bond is a financial product that represents a loan that an investor makes to a borrower (usually a…

Q: If you pay a price to buy a bond that is below its value, you will get a return that is lower than…

A: The statement is false

Q: How does the price-yield relationship for a callable bond compare to the same relationship for an…

A: The price yield relationship for a callable bond is negative convexity and it is positive convexity…

Q: The coupon rate is calculated on the bond's face value (or par value), not on the issue price or…

A: Solution:- Coupon amount is the fixed amount paid by the company to its bondholder at every equal…

Q: the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________.

A: A Bond can generally sell at par, discount or premium

Q: Risk free rate can be derived from a triple A rated commercial bonds and the estimated price of…

A: The risk-free rate is an interest rate that an investor expects for the investment in the risk-free…

Q: Given all else equal, if the yield to maturity of a Treasury bond decreases substantially, generally…

A: Yield to maturity the rate of return that bond hider will get if they hold such bond till maturity…

Q: The market value of a bond will be less than the par value if the market's required yield to…

A: The market price of a bond is the present value of all the future cash inflows.

Question

What is a bond’s market value when the required rate of return (ie market rate) is less than the coupon rate?
1. The bond’s market value is less than the par value.
2. The bond’s market value is the same as the par value.
3. The bond’s market value is greater than the par value.
4. None of the above.

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Does it make any difference if the coupon rate on a bond is more than the needed rate of return on the bond, as long as the required rate of return is greater than the coupon rate? Explain.
When would it make sense for a firm to call a bond issue? A) when the market price of the bond exceeds the call price, and market interest rates are greater than the bond's coupon rate B) when the market price of the bond exceeds the call price, and market interest rates are less than the bond's coupon rate C) when the market price of the bond is less than the call price, and market interest rates are greater than the bond's coupon rate D) when the market price of the bond is less than the call price, and market interest rates are less than the bond's coupon rate
Which of the following statement on bond valuation is correct? A. If bond price is greater than bond face value, the bond is mispriced and no investor will be interested in the bond. B. If YTM is greater than coupon rate, the bond price is greater than the bond face value. C. If the coupon rate is greater than the YTM, the bond price is less than the bond face value. D. If the coupon rate is less than the YTM, the bond price is less than the bond face value.
Which of the following is FALSE? A bond is trading at par if its coupon rate equals interest rates in the market A bond is trading below par if its coupon rate is above interest rates in the market A bond is trading above par if its coupon rate is greater than interest rates in the market A bond is trading below par if its coupon rate is below interest rates in the market
A bond will sell at a premium when its coupon interest rate: is lower than the market interest rate on similar bonds. O exceeds the market interest rate on similar bonds. O varies more than the market interest rate on similar bonds. O equals the market interest rate on similar bonds.
Why does the market value differ from its par value when the coupon interest rate does not equal the market yield to maturity on a comparable-risk bond?
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.
1)Which of the following is NOT true regarding bonds? Group of answer choices A)If a bond is selling at a discount, then the current yield is greater than the yield-to-maturity. B)An increase in market interest rates leads to a decrease in bond prices. C)If the coupon rate on a bond is lower than the yield-to-maturity, the bond sells at a discount. D)If the coupon rate on a bond equals the yield-to-maturity, then the bond sells at par. 2)When calculating free cash flows, which of the following statements is NOT true regarding the depreciation? Group of answer choices A)As an accrual, depreciation does not factor into free cash flow calculations. B)Depreciation is an accrual, not a cash flow. C)Depreciation create a tax shield. D)Depreciation is first removed and the subsequently added back in when calculating free cash flows.
A "discount bond" has a price less than face value because ________________. A) the issuing firm has a high probability of default B) the issuing firm has a low probability of default C) the bond coupon rate is greater than the yield to maturity D) the bond coupon rate is less than the yield to maturity
Under what situation might a bond discount arise when issuing bonds? Select one: a. The coupon rate is less than the effective or yield rate. b. The effective or yield rate is less than the coupon rate. c. The coupon rate is less than the cash rate of interest. d. The effective or yield rate is less than the market rate of interest.
The coupon rate is calculated on the bond's face value (or par value), not on the issue price or market value. Choices: true or false
Which of the following statements about the Macaulay duration of a coupon bond is true? Select one alternative: a.. The duration does not change after the bond is issued. b. The duration will decrease as the yield to maturity decreases. c. None of the other statements is true. d. The duration can precisely predict the price change of the bond for any interest rate change.