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

question 81

Multiple Choice

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

• A) the bond's price will decline each year.
• B) coupon payments can change at any time.
• C) bonds selling for a premium have low default risk.
• D) taxes must be paid on the current yield.

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Definitions:

Balance Sheet

A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time.

Total Assets

The sum of all assets owned by a company at a given time, including current, fixed, and intangible assets.

Stockholders' Equity

The residual interest in the assets of an entity after deducting its liabilities, representing the ownership interest of the shareholders.

Fees Earned

Income earned through the delivery of services.