Which of the Following Statements Is CORRECT

question 72

Multiple Choice

Which of the following statements is CORRECT?

• A) The total return on a bond during a given year is based only on the coupon interest payments received.
• B) All else equal,a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of similar risk is 8%.
• C) The price of a discount bond will increase over time,assuming that the bond's yield to maturity remains constant.
• D) For a given firm,its debentures are likely to have a lower yield to maturity than its mortgage bonds.
• E) When large firms are in financial distress,they are almost always liquidated,whereas smaller firms are generally reorganized.

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Definitions:

Mispricing

An occurrence in financial markets where the price of an asset does not reflect its true value, due to various factors like misinformation or market inefficiency.

Risky-Asset Portfolio

A collection of investments that have a higher risk of loss but also offer the potential for higher returns.

Market Rate

The prevailing interest rate available in the marketplace.

Minimum Variance

Minimum Variance is a portfolio strategy or model that seeks to construct a portfolio with the lowest possible volatility or risk for a given level of expected return.