Which of the following statements is CORRECT? a. The total return on a bond duri

Question

Which of the following statements is CORRECT?

a. The total return on a bond during a given year is based only on the coupon interest payments received. b. The price of a discount bond will increase over time, assuming that the bond's yield to maturity remains constant. c. All else equal, a bond that has a coupon rate of 10% will sell at a discount if the required return for bonds of similar risk is 8%. d. When large firms are in financial distress, they are almost always liquidated, whereas smaller firms are generally reorganized. e. For a given firm, its debentures are likely to have a lower yield to maturity than its mortgage bonds.

Explanation / Answer

Hi,

Option B (The price of a discount bond will increase over time, assuming that the bond's yield to maturity remains constant) is the correct answer.

Thanks.

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