Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity.
• B) 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.
• C) On an expected yield basis, the expected current yield will always be positive because an investor would not purchase a bond that is
• Not expected to pay any cash coupon interest.
• D) If a coupon bond is selling at par, its current yield equals its
• Yield to maturity.
• E) The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B.

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Definitions:

Economic Profits

Economic profits are the excess returns over the total costs, including both explicit and implicit costs.

Pure Competition

A market structure characterized by a large number of small firms, identical products sold by all firms, no barriers to entry or exit, and perfect information among buyers and sellers.

Monopolistic Competition

A market structure characterized by many competitors selling products that are substitutes but differentiated from one another by branding or quality.

Entry Barriers

Conditions that prevent new competitors from easily entering an industry or area of business.