Which of the Following Is Most Likely to Occur Immediately

question 10

Multiple Choice

Which of the following is most likely to occur immediately following the announcement that the rating on a corporate bond has been lowered to junk status?

• A)The yield-to-maturity on the bond will decline.
• B)The price of the bond will decline.
• C)The price of the bond will increase
• D)More than one of these
• E)None of these

---

Definitions:

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Discounted Cash Flow

Discounted Cash Flow is a valuation method used to estimate the attractiveness of an investment opportunity, based on projections of future cash flows adjusted for time value of money.

Time Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project by calculating the present value of its expected cash flows minus the initial investment cost.