What relationship between the required return and the coupon interest rate will cause a bond to sell
Question:
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Step by Step Answer:
A bond sells at a discount when the required return e...View the full answer
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Finance questions
-
What is the relationship between the required return on equities and the equity cost of capital?
-
What relationship between the Sun and Earth did Copernicus formulate?
-
Required Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: a. ____ The stated rate of interest is higher than the market rate....
-
Consider a cube that has 5cm length sides. What is the surface area to volume ratio of this cube? Report your answer in cm/cm Report your answer to one decimal place. QUESTION 12 Consider a cube that...
-
Your examination of the records of Northland Corp. shows the company collected $78,100 in cash from customers and paid $53,900 in cash for operating costs in its first year of operations. If...
-
Domain and range sqrt ( 5 + 4 x - x ^ 2 )
-
Following are selected questions from an internal control questionnaire relating to a company's inventory control, perpetual inventory, and cost records. A ]/es response would indicate a potential...
-
Using the material on the standard deviation and the coefficient of variation presented in the appendix to this chapter, rank the following investments with regard to risk. a) Investment Returns b)...
-
Write a MATLAB program that finds the vector acceleration of a body of mass (m). Two forces are acting on this body F1, and F2 as shown in the figure below. Code: F 45 F
-
Havingn read the BusinessTech article titled "IBM forecast beats estimates for n quarterly sales and earning". Consider the type of research that may n have led to this headline. Do you think it is...
-
What basic procedure is used to value a bond that pays annual interest? Semiannual interest?
-
If the required return on a bond differs from its coupon interest rate, describe the behavior of the bond value over time as the bond moves toward maturity.
-
What is the depth of decision-making latitude commonly found in self-managed teams?
-
Explain what gives property in the United States of America value for foreign investors.
-
Mary was in the store close to closing time. She was looking at new washers. The salesman told Mary that he could give her the best deal that wouldn't cost her more than $200.00 right that minute and...
-
Large payments are becoming more frequent in recent years, The whistle blower program - is it helpful when it comes to white-collar crimes? Harmful? Why are why not?
-
Evaluate the impact of the community policing ideology on police community relations building with the community served. In doing so, speak to the challenges to implementing community policing.
-
What source(s) of law governs contracts? How does one know " which " source (set of legal rules) applies in a given contractual dispute? If a plaintiff prevails in a breach of contract dispute, what...
-
What is the difference between a convertible bond and an exchangeable bond?
-
The diagram shows the two forces acting on a small object. Which of the following is the resultant force on the object? A. 8 N downwards B. 8 N upwards C. 2 N downwards D. 2 N upwards 3 N 5 N
-
What are the different types of probability distributions?
-
What is the important difference between international and domestic transactions? How is a letter of credit used in financing international trade transactions? How is netting used in transactions...
-
Are secured short-term loans viewed as more risky or less risky than unsecured short-term loans? Why?
-
In general, what interest rates and fees are levied on secured short-term loans? Why are these rates generally higher than the rates on unsecured short-term loans?
-
Iguana, Incorporated, manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to...
-
Why does the government intervene in the economy? Explain two ways the government seeks to direct the economy in a mixed economic system like the United States. How can ordinary citizens influence...
-
What strategies do businesses have in place that promote equal opportunity within the organization? Do most businesses offer career development and training to its employees? If so, why? How do...
Study smarter with the SolutionInn App