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.

---

Definitions:

Raw Material Needs

The quantity of raw materials required to meet production schedules and maintain inventory levels.

Net Operating Income

A company's income after subtracting operating expenses but before deducting taxes and interest charges.

Variable Selling Expense

Costs that vary directly with the level of sales, such as commissions for sales personnel, shipping charges, and promotional expenses.

Manufacturing Overhead

All indirect costs associated with the production process, including but not limited to utilities, rent, and salaries of non-direct labor.