Question

(TCO D) Which of the following statements is FALSE?

A.)	Bonds are securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.

B.)	By convention, the coupon rate is expressed as an effective annual rate.

C.)	Bonds typically make two types of payments to their holders.

D.)	The time remaining until the repayment date is known as the term of the bond.

Answer 1

Bond is defined as a debt security issued by government and corporate to raise fund. Since bond is a debt security, so borrower promised to pay interest at specified interest rate and fixed interval and principle after promised time period. Interest rate on bond is called coupon rate. Typically coupon is paid semiannually, so twice in a year. Coupon rate are two types, fixed coupon rate and variable coupon rate. The time remaining in maturity of bond is known as term of bond.

Coupon rate is always expressed as quoted rate or nominal rate not effective annual rate.

So, statement (B) is false statement.