Which of the Following Statements Is CORRECT

question 90

Multiple Choice

Which of the following statements is CORRECT?

• A) The market value of a bond will always approach its par value as its maturity date approaches.This holds true even if the firm has filed for bankruptcy.
• B) Rising inflation makes the actual yield to maturity on a bond greater than a quoted yield to maturity that is based on market prices.
• C) The yield to maturity on a coupon bond that sells at its par value consists entirely of a current interest yield; it has a zero expected capital gains yield.
• D) On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.
• E) The yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains yield; it has a zero current interest yield.

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Definitions:

Price-Taker

An economic agent (e.g., a firm or consumer) that has no control over the market price and must accept prices as given.

Economic Profit

The surplus achieved when total revenue exceeds the opportunity costs of all resources used in production.

Monopolistically Competitive

A market structure characterized by many firms offering products that are similar but not identical, leading to competition based on factors other than price.

Advertising

The action of calling public attention to products, services, events, or concepts, usually through paid announcements by an identified sponsor.