A Perpetuity Bond Is Sold with the Following Terms: Coupon

question 158

Multiple Choice

A perpetuity bond is sold with the following terms: coupon rate = 5% and face value = $1,000. Five years after the bond is issued, the market rate of interest on similar bonds is 6%. Which statement accurately describes the situation if the bond is sold in the secondary bond market at that time (five years after its initial issue) ?

• A) The annual interest payment will rise from $50 to $60.
• B) The face value will fall from $1,000 to $833.33.
• C) The bond will sell for about $833.33 in the secondary market.
• D) The annual interest rate will fall from 5% to 3%.

---

Definitions:

Fill Rate

The percentage of customer or order demand that is met from available stock without backorders.

Continuous Review

A method of inventory control that constantly monitors stock levels and reorders when inventory drops to a predetermined point.

Periodic Review

A systematic evaluation process conducted at regular intervals to assess performance or condition over a period.

Lead Time

The amount of time that elapses between the initiation of a process and its completion, often used in the context of product manufacturing or procurement.