If You Buy a Bond That Is Selling for Less

question 63

Multiple Choice

If you buy a bond that is selling for less than its face, or maturity, value what will happen to the price (value) of the bond as the maturity date nears if market interest rates do not change during the life of the bond?

• A)Because interest rates remain constant, nothing happens to the market value of the bond.
• B)The price of the bond should decrease even further below the bond's face value because the rates in the market are too high.
• C)The price of the bond will increase as the bond gets closer to its maturity because the bond's value has to equal its face value at maturity.
• D)This question cannot be answered without additional information.
• E)None of the above is a correct answer.

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Definitions:

Product Differentiation

The strategy of distinguishing a product or service from others in the market to make it more attractive to a particular target market.

Herfindahl Index

A measure of market concentration that squares the market share of each firm competing in the market and sums the resulting numbers, used to assess the competitiveness of a market.

Monopolistically Competitive

Refers to a market structure where many firms sell products that are similar but not identical, allowing for some degree of product differentiation and market power for each firm.

Price Control

Government-imposed limits on the prices that can be charged for goods and services in the market to control inflation and stabilize the economy.