Suppose a Bond’s Price Is Expected to Increase by 5

question 6

Multiple Choice

Suppose a bond’s price is expected to increase by 5% if its market discount rate decreases by 100 basis points. If the bond’s market discount rate increases by 100 basis points, the bond price is most likely to change by:

• A) 5%.
• B) less than 5%.
• C) more than 5%.

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Definitions:

Accounts Receivable

Accounts receivable refers to the money owed to a company by its customers for goods or services delivered but not yet paid for, representing a line of credit from the company to the customer.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term health and efficiency of its operations.

Spontaneous Financing

Financing that arises naturally from the operations of a company, such as trade credit that increases as sales grow, without requiring explicit negotiation or arrangements.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency.