You Have a Bond That Pays $60 Per Year in Coupon

question 75

Multiple Choice

You have a bond that pays $60 per year in coupon payments.Which of the following would result in an increase in the price of your bond?

• A)Coupon payments on newly-issued bonds rise to $80 per year.
• B)The likelihood that the firm issuing your bond will default on debt increases.
• C)The price of a share of stock in the company falls.
• D)Coupon payments on newly-issued bonds fall to $50 per year.

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Definitions:

Exercise Price

The predetermined price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Market Price

The current financial rate for assets or services set by the open market.

Stock Options

Rights given to employees or investors to purchase a company's stock at a predefined price for a specific period.

Present Value Factor

A multiplier used to determine the present value of a future sum of money or stream of cash flows given a specific discount rate.