When Interest Rates Move from 9 to 10% Per Annum

question 84

Multiple Choice

When interest rates move from 9 to 10% per annum for a three-year bond paying a 9% per annum coupon,the:

• A) coupon rate becomes higher than the current market yield
• B) present value of the bond becomes higher than the face value
• C) current yield becomes higher than the coupon rate
• D) current price of the bond will increase

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Definitions:

Takeover Attempt

A bid by a company or investor to acquire control of another company, often by purchasing a substantial portion of its stock.

White Knight

A friendly investor or company that acquires a firm at risk of a hostile takeover, often viewed as a more favorable option by the target company's management.

Bonds

Fixed-income securities that represent a loan made by an investor to a borrower, typically corporate or governmental, which includes terms for variable or fixed interest payments and the return of the original investment at maturity.

Shares

Units of ownership interest in a corporation or financial asset, providing an equal distribution in any profits, if any are declared, in the form of dividends.