W h a t b a s i c p r o c e d u r e i s u s e d t o v a l u e a b o n d t h a t p a y s a n n u a l i n t e r e s t ? S e m i a n n u a l i n t e r e s t ? W h a t r el a t i o n s h i p b e t w e e n t h e r e q u i r e d r e t u r n a n d t h e c o u p o n i n t e r e s t r a t e w i l l c a u s e a b o n d t o s e l l a t a d i s c o u n t ? A t a p r e m i u m ? A t i t s p a r v a l u e ? I f t h e r e q u i r e d r e t u r n o n a b o n d d i f f e r s f r o m i t s c o u p o n i n t e r e s t r a t e , d e s c r i b e t h e b e h a v i o r o f t h e b o n d v a l u e o v e r t i m e a s t h e b o n d m o v e s t o w a r d ma t u r i t y . A s a r i s k - a v e r s e i n v e s t o r , w o u l d y o u p r e f e r b o n d s w i t h s h o r t o r l o n g p e r i o d s u n t i l m a t u r i t y ? W h y ?

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4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA1: International Financial Reporting Standards

Section: Chapter Questions

Problem 3MCQ

Related questions

Question

W h a t b a s i c p r o c e d u r e i s u s e d t o v a l u e a b o n d t h a t p a y s a n n u a l i n t e r e s t ? S e m i a n n u a l i n t e r e s t ?
W h a t r el a t i o n s h i p b e t w e e n t h e r e q u i r e d r e t u r n a n d t h e c o u p o n i n t e r e s t r a t e w i l l c a u s e a b o n d t o s e l l a t a d i s c o u n t ? A t a p r e m i u m ? A t i t s p a r v a l u e ?
I f t h e r e q u i r e d r e t u r n o n a b o n d d i f f e r s f r o m i t s c o u p o n i n t e r e s t r a t e , d e s c r i b e t h e b e h a v i o r o f t h e b o n d v a l u e o v e r t i m e a s t h e b o n d m o v e s t o w a r d ma t u r i t y .
A s a r i s k - a v e r s e i n v e s t o r , w o u l d y o u p r e f e r b o n d s w i t h s h o r t o r l o n g p e r i o d s u n t i l m a t u r i t y ? W h y ?

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