Which of the Following Statements Is CORRECT

question 14

Multiple Choice

Which of the following statements is CORRECT?

• A)The yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains yield; it has a zero current interest yield.
• B)The market value of a bond will always approach its par value as its maturity date approaches.This holds true even if the firm has filed for bankruptcy.
• C)Rising inflation makes the actual yield to maturity on a bond greater than a quoted yield to maturity that is based on market prices.
• D)The yield to maturity on a coupon bond that sells at its par value consists entirely of a current interest yield; it has a zero expected capital gains yield.
• E)On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.

---

Definitions:

Discount on Bonds Payable

The difference between the face value of a bond and the lower price at which it is sold, representing additional interest expense to the issuer over the bond's life.

Interest Expense

Costs incurred by an entity for borrowed funds, which are recognized on the income statement.

Fixed Asset

Long-term tangible assets, such as machinery and buildings, used in the operation of a business, not expected to be consumed or converted into cash in the short term.

Cash Flow Statement

A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives from its ongoing operations, investment, and financing activities.