In the Income Statement, interest would be considered _____ and would _____ Net
ID: 2645554 • Letter: I
Question
In the Income Statement, interest would be considered _____ and would _____ Net Income.
revenue; increase
operating expense; increase
interest expense; decrease
other income; decrease
To calculate the interest payment in dollars a bond will pay the owner each year, you would _____.
multiply the YTM by the bond price
divide the YTC by the call price
divide Rd by coupon
multiply coupon by par value
any of the above
Assuming the day after the bond is sold, the yield to maturity inceases from 7% to 9%. What will happen to the price of the bond? Why?
It will rise; the bond price is a function of (Kd) where Kd = Market Interest Rate.
It will fall; the bond price is a function of (1/Kd).
It will not change; the bond price is not a function of (Kd).
revenue; increase
operating expense; increase
interest expense; decrease
other income; decrease
To calculate the interest payment in dollars a bond will pay the owner each year, you would _____.
multiply the YTM by the bond price
divide the YTC by the call price
divide Rd by coupon
multiply coupon by par value
any of the above
Assuming the day after the bond is sold, the yield to maturity inceases from 7% to 9%. What will happen to the price of the bond? Why?
It will rise; the bond price is a function of (Kd) where Kd = Market Interest Rate.
It will fall; the bond price is a function of (1/Kd).
It will not change; the bond price is not a function of (Kd).
Explanation / Answer
1>In the Income Statement, interest would be considered _____ and would _____ Net Income.
Ans:revenue; increase
2>To calculate the interest payment in dollars a bond will pay the owner each year, you would _____.
Ans:multiply coupon by par value
3>Assuming the day after the bond is sold, the yield to maturity inceases from 7% to 9%. What will happen to the price of the bond? Why?
Ans : It will fall; the bond price is a function of (1/Kd). Reason: When we discount the cashflow at higher YTM , the PV of the cash flow will reduce.