A “buy-and-hold” investor purchases a fixed-rate bond at a discount and holds it until it matures. Which of the following least likely contributes to the investor’s total return, assuming all payments are made as scheduled?
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1.
A “buy-and-hold” investor purchases a fixed-rate bond at a discount and holds it until it matures. Which of the following least likely contributes to the investor’s total return, assuming all payments are made as scheduled?
A. |
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B. |
Principal payment |
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C. |
Reinvestment of coupon payments |
|
D. |
Coupon income |
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- 2: Investors invest in Fixed Income securities (i.e., bonds) for the passive income that comes from coupon payments. T/Fa. An investment in a coupon bond will provide the investor with a return equal to the bond’s yield to maturity at the time of purchase if:i. The bond is not called for redemption at a price that exceeds its par value.ii. All sinking fund payments are made in a prompt and timely fashion over the life of the issue.iii. The reinvestment rate is the same as the bond’s yield to maturity and the bond is held until maturity.iv. All of the above.b. A bond with a call feature:i. Is attractive because the immediate receipt of principal plus premium produces a high return.ii. Is more apt to be called when interest rates are high because the interest savings will be greater.iii. Will usually have a higher yield to maturity than a similar noncallable bond.iv. None of the above.c. In which one of the following cases is the bond selling at a discount?i. Coupon rate is greater than current yield, which is greater than yield to maturity.ii. Coupon rate, current yield, and yield to maturity are all the…2. Bond valuation The proces value of the cash flows that the security will generate in the future s of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic pay, and a bondholder's required return Remember, a bond's coupon rate partially determines the interest-based return that a bond reflects the return that a bondholder to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return,…
- he interest rate used to calculate the present value of a bond's cash flows is often referred to as the:Group of answer choices dividend rate. discount rate. multiplier. yield to maturityYou want to invest in a company that guarantees your money's interest payments and returns at the maturity date as an investor. Which is the best option for this investment? a. bonds b. stocks c. stocks and bonds d. neither stocks nor bonds1. To calculate a gain or loss on redemption of a bond, you compare a. The market interest rate to the contract rate b. The carrying value value of the bond to the proceeds received from the sale of the bond c. The income for the period d. The proceeds to the unamortized premium or discount 2. If the proceeds are greater than the carrying value, you will have a a. gain with a credit balance b. gain with a debit balance c. loss with a debit balance d. loss with a credit balance
- 4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. This also results from the relationship between a bond’s coupon rate and a bondholder’s required rate of return. Remember, a bond’s coupon rate partially determines the interest-based return that a bondwill pay, and a bondholder’s required return reflects the return that a bondholderis obligated to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s…4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic value and its par value. This also results from the relationship between a bond's coupon rate and a bondholder's required rate of return. Remember, a bond's coupon rate partially determines the interest-based return that a bond i reflects the return that a bondholder to receive from a given investment. pay, and a bondholder's required return The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required…The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
- The method used to value a default-free zero coupon bonds (such as T-bills) requires that the interest is deducted from the face value of the bonds in advance. a.rediscounting b.market price c.forward price d.discount interestA trasury security in which periodoc coupon interest payments can be seperate from eachother ad from the orinciple payment is called a: A. STRIP B. T-notes C. T-Bonds D. G. O. Bond E. Revenue bondChanges in yield-to-maturity (YTM) produce market price risk and reinvestment risk. A __________ in yield-to-maturity (YTM) increases a bond’s price and __________ its reinvestment risk. A. decrease / decrease B. decrease / increase C. increase / increase D. increase / decrease