The Current Yield Tends to Understate a Bond's Total Return

question 68

Multiple Choice

The current yield tends to understate a bond's total return when the bond sells for a discount because:

• A) increases in interest rates will increase the current yield.
• B) the bond's price will increase each year.
• C) current yields show only nominal returns.
• D) the bond may have a higher face value.

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Definitions:

Net Income

The total profit of a company after subtracting all its expenses from its revenues.

Direct Method

A way to prepare the cash flow statement where actual cash flow information from company’s operations segment is used.

Operating Expenses

Expenses incurred in the normal course of business operations, excluding costs of goods sold and depreciation.

Prepaid Expenses

Costs paid for in advance for goods or services to be received or used in the future, recorded as assets and subsequently expensed over the applicable period.