Asked by
Cheyenne Tindall
on Oct 19, 2024
Verified
A discount bond that pays interest semiannually will:
I. Have a lower price than an equivalent annual payment bond
II. Have a higher EAR than an equivalent annual payment bond
III. Sell for less than its conversion value
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III
Equivalent Annual Payment Bond
A type of bond that pays annual interest payments, calculated to provide a return equivalent to other periodic payment schedules.
EAR
Effective Annual Rate, a measure of interest that takes into account the effects of compounding over a year.
Conversion Value
The financial worth of converting a convertible security, like a bond, into a set number of shares of the issuing company.
- Comprehend the pricing mechanisms and yield calculations for different types of bonds, including zero-coupon, discount, and callable bonds.
Verified Answer
KM
Learning Objectives
- Comprehend the pricing mechanisms and yield calculations for different types of bonds, including zero-coupon, discount, and callable bonds.