If You Buy a Bond That Is Selling for Less

question 63

Multiple Choice

If you buy a bond that is selling for less than its face, or maturity, value what will happen to the price (value) of the bond as the maturity date nears if market interest rates do not change during the life of the bond?

• A)Because interest rates remain constant, nothing happens to the market value of the bond.
• B)The price of the bond should decrease even further below the bond's face value because the rates in the market are too high.
• C)The price of the bond will increase as the bond gets closer to its maturity because the bond's value has to equal its face value at maturity.
• D)This question cannot be answered without additional information.
• E)None of the above is a correct answer.

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Definitions:

Prior Period Adjustment

Adjustments made to the financial statements to correct errors or inaccuracies from previous periods.

Residual Value

The estimated salvage value an asset will have at the end of its useful life.

Manufacturing Equipment

Machinery and tools that are used in the process of producing goods in a manufacturing facility.

Salvage Value

Salvage Value is the estimated residual value of an asset at the end of its useful life, expected to be recovered once the asset is no longer useful in operations.