If Interest Rates in the Overall Economy Decrease to 4

question 84

Multiple Choice

If interest rates in the overall economy decrease to 4 percent,which one of the following is most likely to be the approximate market value of a $1,000 corporate bond with a fixed interest rate of 6 percent?

• A)$1,000
• B)$1,500
• C)$2,000
• D)$4,000
• E)$6,000

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Definitions:

Cost of Capital

The rate of return a company must offer investors to finance its assets, reflecting the risk of investing.

Interest Rates

The segment of a loan that incurs interest charges, customarily expressed as an annual percentage of the loan's unpaid balance.

External Financing

Funds that a business acquires from outside sources to support its operations or growth, such as loans or equity investments.

Yield to Maturity

The expected total yield on a bond when held to its maturity date, articulated as a yearly rate.