If there quoted rate of return on a bond (Rd) is greater than its coupon interes
ID: 2751887 • Letter: I
Question
If there quoted rate of return on a bond (Rd) is greater than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until it matures, at which time it's market value will equal it's par value. (Accrued interest between interest payment dates should not be considered when answering)True False If there quoted rate of return on a bond (Rd) is greater than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until it matures, at which time it's market value will equal it's par value. (Accrued interest between interest payment dates should not be considered when answering)
True False
True False
Explanation / Answer
As the bond's price fluctuates, the price is described relative to the original par value, or face value; the bond is referred to as trading either "at a premium," or above par value, or "at a discount," or below par value.
Three of the factors that influence a bond's current market price are the credit rating of the entity that issued the bond, the market demand for the bond and the time remaining until the bond's maturity date. The maturity date is an important factor because as the bond nears its maturity date, the date when the bondholder is paid the full face value of the bond, the bond price naturally tends to move closer to par value.