If the Current Price of a Bond Is Less Than

question 72

Multiple Choice

If the current price of a bond is less than its face value,

• A)an investor will receive a capital gain by holding the bond until maturity.
• B)the yield to maturity must be less than the current yield.
• C)the coupon rate must be greater than the current yield.
• D)the coupon rate must be equal to the current yield.

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Definitions:

Dividend Payout Ratio

A financial metric that measures the percentage of a company's earnings paid to its shareholders in dividends.

Capital Gains

The profit earned from the sale of an asset, such as stocks or real estate, which has increased in value over the holding period.

Tax Rates

The percentage at which an individual or corporation is taxed, which can vary based on income levels, jurisdictions, and the type of taxes being calculated.

Dividend Irrelevance

Dividend irrelevance theory suggests that the dividend policy a company follows has no effect on the company’s stock price or its cost of capital.