If the Value of a Treasury Bond Was Lower Than

question 58

Multiple Choice

If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows)

• A)arbitrage would probably occur.
• B)arbitrage would probably not occur.
• C)the FED would adjust interest rates.
• D)B and C
• E)none of the above

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Definitions:

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the amount by which sales can drop before a business incurs a loss.

Break-even Point

The level of sales at which total revenues equal total costs, and the business makes no profit but also incurs no loss.

Break-even Analysis

An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue, indicating no net loss or gain.

Operating Income

Income from a company's main business activities, excluding expenses such as interest and taxes.