A Bond Whose Coupon Rate Is Below the Current Market

question 27

Multiple Choice

A bond whose coupon rate is below the current market rate of interest will have a price:

• A)more than its maturity value of Rs.100.
• B)less than its maturity value.
• C)equal to its maturity value
• D)none

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Definitions:

Money Supply

The total amount of money—cash, coins, and balances in bank accounts—in circulation within a country's economy at a specific time.

Required Reserve Ratio

The fraction of deposits that banks are required to keep on hand and not lend out, as set by the central bank.

Discount Rate

The interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.

Required Reserve Ratio

The fraction of deposits that a bank is required by regulation to hold in reserve, either in its own vaults or with a central bank, and not lend out.