If Current Interest Rates Are Lower Than the Coupon Rate

question 179

Multiple Choice

If current interest rates are lower than the coupon rate, investors owning a bond can:

• A)sell the bond at a premium, because lower interest rates will cause investors to bid price up to the point where their investment yields the market's return.
• B)only sell the bond at a discount (below face value), recognizing that the lower the price of the bond, the closer the yield becomes to the market's return.
• C)be wise to hold the bond until maturity, at which point the market value will greater than the face value of the bond.
• D)None of the above

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Definitions:

Holder-Of-Record Date

The specific date set by a corporation on which the shareholders of record are entitled to receive a declared dividend or participate in corporate actions.

Private Debt

consists of loans and debt financing not traded on open markets, often issued to finance business operations or acquisitions, typically by private companies or individuals.

OSC Registration

The process by which individuals or firms must register with the Ontario Securities Commission to legally trade or underwrite securities in Ontario, Canada.

Restrictive Covenants

Provisions in a loan or bond agreement that limit certain actions of the borrower to protect the interests of the lender.