When the Required Return Is Constant but Different from the Coupon

question 40

Multiple Choice

When the required return is constant but different from the coupon rate, the price of a bond as itapproaches its maturity date will

• A) remain constant.
• B) decrease.
• C) increase.
• D) approach par.

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Definitions:

Savings

The portion of income not spent on current expenditures or taxes, which is set aside for future use or investment.

Autonomous Consumption

Spending that does not depend on current income levels, such as basic necessities, implying that this consumption occurs even in the absence of income.

Disposable Income

represents the amount of money that households have available for spending and saving after income taxes have been accounted for.

Saving

The portion of income that is not spent on consumption but rather set aside for future use or emergencies, contributing to personal and national wealth.