Holding All Other Variables Constant, an Increase in the Discount

question 98

True/False

Holding all other variables constant, an increase in the discount rate would increase a present value.

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Definitions:

Zero-coupon Bond

A bond that does not pay interest during its life and is sold at a discount from the face value, which is paid to the holder at maturity.

Forward Interest Rate

A rate that is deduced from current bond yields, representing the expected future interest rate between two periods.

Bond Stripping

Selling bond cash flows (either coupon or principal payments) as stand-alone zero-coupon securities.

Arbitrage

The method of earning profits by exploiting the price variances of an identical asset across diverse markets through concurrent purchase and sale.