If the Value of a Treasury Bond Was Lower Than

question 37

Multiple Choice

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows) ,

• A) arbitrage would probably occur.
• B) arbitrage would probably not occur.
• C) the FED would adjust interest rates.
• D) None of the options are correct.

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Definitions:

Restructuring

The process of reorganizing a company's structure, finances, or operations to improve efficiency or to adapt to new market conditions.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows.

Total Value

The combined market value of all the assets owned by an entity.

Optimal Capital Structure

The best mix of debt and equity financing that minimizes a company's cost of capital and maximizes its stock price.