Assume an Investor Purchased a Fixed-Coupon Bond at a Time

question 13

Multiple Choice

Assume an investor purchased a fixed-coupon bond at a time when the bond's yield to maturity was 6.9%.Further assume the investor sold the bond prior to maturity and realized a total return of 7.1%.Which of these most likely occurred while the investor owned the bond?

• A)the bond's current yield increased above the bond's coupon rate.
• B)the inflation rate increased.
• C)new bonds with similar characteristics have coupon rates of 6.5%.
• D)market interest rates increased.

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Definitions:

Doctrine

A principle or set of principles laid down by an authority as incontrovertibly true.

Indemnification

A contractual obligation in which one party agrees to compensate another for any harm or loss that has occurred or might occur due to a specified event or action.

Negligent Employee

An employee who fails to exercise the degree of care considered reasonable under the circumstances, resulting in harm or loss.

Respondeat Superior

A legal doctrine holding an employer or principal legally responsible for the wrongful actions of an employee or agent, if such actions occur within the scope of employment or representation.