If a Bond's Par Value Is Greater Than Its Market

question 117

Multiple Choice

If a bond's par value is greater than its market price,which of the following can we reasonably state about the general direction of interest rates in the recent past?

• A)Interest rates have risen.
• B)Interest rates have remained relatively stable.
• C)Interest rates have declined.
• D)None of the above are accurate.

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Definitions:

Coupon Rate

The yearly rate of interest that the entity issuing a bond pays to the bondholders, represented as a percentage of the bond's principal value.

Yield To Maturity

The expected rate of return on a bond if held until its maturity date, reflecting both interest payments and any gain or loss if the bond was purchased at a discount or premium.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuer's equity shares at certain times during the bond's life, usually at the discretion of the bondholder.

Coupon Rates

The interest rate stated on a bond when issued, which represents the annual interest payment divided by the bond's face value.