Which of the following statements is true? When investors' required rate of return is less than the bond's coupon rate, then market value of the bond will be greater than face value. a. O b. When investors' required rate of return exceeds the bond's coupon rate, then the market value of the bond will be greater than face value. When investors' required rate of return is less than the bond's coupon rate, then the market value of the bond will be less than face value. O d. When investors' required rate of return equals the bond's coupon rate, then the market value of the bond may be selling at face value. C.

Which of the following statements is true? When investors' required rate of return is less than the bond's coupon rate, then market value of the bond will be greater than face value. a. O b. When investors' required rate of return exceeds the bond's coupon rate, then the market value of the bond will be greater than face value. When investors' required rate of return is less than the bond's coupon rate, then the market value of the bond will be less than face value. O d. When investors' required rate of return equals the bond's coupon rate, then the market value of the bond may be selling at face value. C.

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 9Q: In Chapter 7, we saw that if the market interest rate, rd, for a given bond increased, the price of...

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In Chapter 7, we saw that if the market interest rate, rd, for a given bond increased, the price of the bond would decline. Applying this same logic to stocks, explain (a) how a decrease in risk aversion would affect stocks prices and earned rates of return, (b) how this would affect risk premiums as measured by the historical difference between returns on stocks and returns on bonds, and (c) what the implications of this would be for the use of historical risk premiums when applying the SML equation.
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 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.
What will be the price of a bond in which the YTM is higher than the coupon rate? a. Below face value b. At face value c. Above face value d. Cannot be determined
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.
Risk free rate can be derived from a triple A rated commercial bonds and the estimated price of options is dependent on the expected return of an investor. true or false?
e. If the bondholder’s required rate of return equals the coupon interest rate, the bondwill sell at _________.
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.