If the Purchase Price of a Bond Exceeds the Face

question 113

Multiple Choice

If the purchase price of a bond exceeds the face value, the yield to maturity:

• A) is greater than the coupon rate because the capital gain is positive.
• B) will equal the current yield.
• C) will be less than the coupon rate because the capital gain will be negative.
• D) will be greater than the current yield.

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Definitions:

Profit

The financial surplus remaining after all operating expenses, taxes, and costs have been deducted from total revenue.

Factory Overhead Applied

The allocation of indirect manufacturing costs to produced goods based on estimated or predetermined rates.

Predetermined Factory Overhead Rate

A rate calculated before a period begins, used to allocate estimated overhead costs based on a selected activity base to individual products.

Actual Activity Base

A measure used to allocate costs based on the actual level of activity or usage, often used in budgeting and accounting.