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.

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Definitions:

Retained Earnings

The portion of a company's profits that is held or retained and not paid out as dividends to shareholders, often used for investing in business growth.

Federal Budget

The government's estimate of revenue and spending for a specific fiscal period, detailing how public resources will be allocated.

R&D

Research and Development; activities in connection with corporate or governmental innovation aimed at discovering new knowledge and its application.

Past 50 Years

Referring to the time period extending back from the current date through the last five decades, often used to contextualize changes and developments.