A Bond That You Held to Maturity Had a Realized

question 37

Multiple Choice

A bond that you held to maturity had a realized return of 8%, but when you bought it, it had an expected return of 6%. If no default occurred, which one of the following must be true?

• A) The bond was purchased at a premium to par.
• B) The coupon rate was 8%.
• C) The required return was greater than 6%.
• D) The coupons were reinvested at a higher rate than expected.
• E) The bond must have been a zero coupon bond.

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Definitions:

Adjusting Entry

These are journal entries made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Bonds Pay Interest

A statement indicating that bond issuers periodically make interest payments to bondholders.

Semiannually

Refers to an event or action that occurs twice a year.

Sold Bonds

The act of a company or government issuing bonds to investors in exchange for capital, representing a long-term borrowing.