How Can a Bond Have a Negative Rate of Return

question 94

Multiple Choice

How can a bond have a negative rate of return?

• A) if the current yield is greater than the coupon rate
• B) if the current yield is less than the coupon rate
• C) if the rate of capital loss exceeds the current yield
• D) if the rate of capital gains is less than the current yield

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Definitions:

Lessee

A person or entity that leases property or equipment from another, known as the lessor, under a lease agreement.

Lessor

An entity or individual that owns an asset and grants another party the right to use that asset in exchange for periodic rental payments.

Capital Lease

A lease classified by the lessee as an asset and liability on the balance sheet because it effectively transfers substantially all risks and rewards of ownership to the lessee.

Executory Costs

These are costs associated with fulfilling the terms of a contract, excluding the direct material and direct labor costs, such as utilities, insurance, and property taxes involved in leasing.