Which of the Following Statements Is True of Bonds

question 1

Multiple Choice

Which of the following statements is true of bonds?

• A) Long-term bonds issued by corporations usually mature five years after issuance.
• B) Unlike dividends on stock, a firm does not have a legal obligation to pay interest on bonds.
• C) When a bond's market price is below par value, it is selling at a discount.
• D) Bondholders cannot sell their bonds to other investors before they mature.

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Definitions:

Market Yield

The current yield of a bond or other fixed-income security, calculated by dividing the annual interest income by the current market price.

Par-Value

The face value of a bond or stock as stated by the issuer, which is typically the amount repaid at maturity for bonds.

Modified Duration

A formula used to determine the sensitivity of a bond's price to a 1% change in interest rates, indicating the percentage change in price for each percentage point change in yields.

Market Yield

The current annual income returned on an investment, measured as a percentage of the investment's market price.