Financial Management - Study Mode

[#451] If coupon rate is equal to going rate of interest then bond will be sold
Correct Answer

(A) at par value

Explanation

Solution: If coupon rate is equal to going rate of interest then bond will be sold at par value. A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond's issue date until it matures. Coupons are normally described in terms of the coupon rate, which is calculated by adding the sum of coupons paid per year and dividing it by the bond's face value.

[#452] Falling interest rate leads change to bondholder income which is
Correct Answer

(A) reduction in income

Explanation

Solution: Falling interest rate leads change to bondholder income which is reduction in income. An income bond is a type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments paid only if the issuing company has enough earnings to pay for the coupon payment.

[#453] Bonds issued by corporations and exposed to default risk are classified as
Correct Answer

(A) corporation bonds

Explanation

Solution: Bonds issued by corporations and exposed to default risk are classified as corporation bonds. A corporate bond is a debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds.

[#454] Treasury bonds are exposed to additional risks that are included
Correct Answer

(D) Both A and B

Explanation

Solution: Treasury bonds are exposed to additional risks that are included reinvestment risk and interest rate risk.

[#455] If bond's call provision is practiced in first year of issuance then an additional payment is classified as
Correct Answer

(C) call provision

Explanation

Solution: If bond's call provision is practiced in first year of issuance then an additional payment is classified as call provision. A call provision is a provision on a bond or other fixed-income instrument that allows the issuer to repurchase and retire its bonds.