What is a bond's accrued interest? Multiple choice question. It is the additional interest that a firm must pay if the interest cheques are mailed late. It is the interest that has been received but not yet earned. It is the difference between the bond's coupon rate and the market yield. It is the interest that has been earned but not yet received.

What is a bond's accrued interest? Multiple choice question. It is the additional interest that a firm must pay if the interest cheques are mailed late. It is the interest that has been received but not yet earned. It is the difference between the bond's coupon rate and the market yield. It is the interest that has been earned but not yet received.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.6: Perpetuities

Problem 2ST

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The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
If interest rates in the financial markets increase after a bond is issued, what will happen to the bond's price and to its yield to maturity? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?
explain how fluctuating market interest rates impact the price of a bond being sold on the secondary market. Why would a bond be selling at a premium or a discount?
What is the relationship between interest rate level and bond price? Why must this relationship be true? How has the current rate environment impacted the prices of bonds?
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.
How does a bond issuer decide on the appropriate coupon rate to set on its bonds? Are short-term bond prices more sensitive to interest rate changes than long-term bond prices?
How does a bond issuer decide on the appropriate coupon rate to set on its bonds? Explain the difference between the coupon rate and the required return on a bond.
If interest rates rise after a bond issue, what would happen to the bond's price and YTM? Does the time to maturity affect the extend to which interest rates changes affect the bond price? (Please give an example)
Why is it an interest rate risk when investing in long-term bonds?
What are the total return, the current yield, and the capital gains yield for the discount bond? (Assume the bond is held to maturity and the company does not default on the bond.)
Which of the following is TRUE concerning the distinction between interest rates and returns? Select one: a. The rate of return will be greater than the interest rate when the price of the bond falls during the holding period. b. The return can be expressed as the difference between the current yield and the rate of capital gains. c. The rate of return on a bond will not necessarily equal the interest rate on that bond. d. The return can be expressed as the sum of the discount yield and the rate of capital gains
Explain the difference between the coupon rate and the required return on a bond.