Assume a Bond Is Currently Selling at Par Value

question 81

Multiple Choice

Assume a bond is currently selling at par value. What will happen if the bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

• A) The price of the bond will increase.
• B) The coupon rate of the bond will increase.
• C) The par value of the bond will decrease.
• D)The coupon payments will be adjusted to the new discount rate.

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Definitions:

After-Tax Net Income

The amount of profit a company remains with after all tax expenses have been deducted from its total income.

Accounting Rate of Return

A financial metric used to assess the profitability of an investment, calculated as the average annual return over the investment's life divided by the initial investment cost.

Straight-Line Depreciation

An arrangement for apportioning the financial burden of a physical investment throughout its active life in equal yearly disbursements.

Accounting Rate of Return

A financial ratio used to measure the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.