A Company Issues a Ten-Year $1,000 Face Value Bond at Par

question 25

Multiple Choice

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?

• A) -6.50%
• B) -9.75%
• C) -8.13%
• D) -11.38%

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Definitions:

Liabilities

Debts or obligations of a business that arise during the course of its operations.

Withdrawals

Refers to the act of taking money out of a bank account, or in the context of partnerships, amounts taken out by partners for personal use.

Expenses

Costs incurred by a business in the process of earning revenues, including utilities, rent, payroll, and materials.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the ownership interest in the company.