When Pricing Bonds, If a Bond's Coupon Rate Is Less

question 247

Multiple Choice

When pricing bonds, if a bond's coupon rate is less than the required rate of return, then:

• A) The holder of the bond is assured of a profit regardless of when the bond is eventually sold.
• B) The holder of the bond will realize a capital gain if the bond is held to maturity.
• C) The bond sells at par because the required rate of return is adjusted to reflect the discrepancy.
• D) The bond sells at a premium if it has a long maturity, a discount if it has a short maturity.
• E) The bond sells at a discount if it has a long maturity, a premium if it has a short maturity.

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Definitions:

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