Asked by Hazeline Sutana on Jul 26, 2024
Verified
In which of the following situations will the book value of a bond be equal to its maturity value?
A) The effective rate exceeds the stated rate.
B) The nominal rate exceeds the yield rate.
C) The yield rate equals the contract rate.
D) The effective rate equals the yield rate.
Maturity Value
The amount payable to an investor at the end of a debt instrument's holding period or maturity date, including both the principal and any remaining interest payments.
Stated Rate
The interest rate stated on the face of a bond or other fixed-income security, which is used to calculate the interest payments to the bondholders.
- Understand bond pricing in relation to face value and its impact on effective interest rates.
- Distinguish between the market rate, contract rate, and other related rates in bond transactions.
Verified Answer
ZK
Zybrea KnightAug 02, 2024
Final Answer :
C
Explanation :
The book value of a bond will be equal to its maturity value when the yield rate equals the contract rate, which is the rate stated when the bond is issued. In this situation, there is no premium or discount on the bond, and the book value is simply the face value or maturity value.
Learning Objectives
- Understand bond pricing in relation to face value and its impact on effective interest rates.
- Distinguish between the market rate, contract rate, and other related rates in bond transactions.