If Current Interest Rates Are Higher Than a Bond's Coupon

question 67

Multiple Choice

If current interest rates are higher than a bond's coupon rate, owners can:

• A)hold the bond until maturity, at which point its market value will equal its face value.
• B)sell the bond at a premium, because investors are sensitive to price changes in bonds caused by increased interest rates.
• C)sell the bond at a discount, because investors recognize that the lower the bond's price the higher is its yield.
• D)a and c

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Definitions:

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