What Happens When a Bond's Expected Cash Flows Are Discounted

question 90

Multiple Choice

What happens when a bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

• A) The price of the bond increases.
• B) The coupon rate of the bond increases.
• C) The par value of the bond decreases.
• D) The coupon payments are adjusted to the new discount rate.

---

Definitions:

Top Fifth

Typically refers to the highest 20% of earners or performers in a given distribution, often used in discussions of income inequality.

Income Equality

Income equality refers to a situation where earnings are distributed evenly across the population, minimizing disparities between the richest and poorest individuals.

Efficiency

The optimal use of resources to achieve the desired output with minimal waste or effort.

Negative Income Tax

A welfare system in which individuals earning below a certain income threshold receive supplemental pay from the government instead of paying taxes.