Question

Which of the following statements is incorrect? a. If the coupon rate of a bond is...

Which of the following statements is incorrect?

a. If the coupon rate of a bond is below the investor's required rate of return, the present value of the bond should be above the par value.
b. If the coupon rate of a bond is above the investor's required rate of return, the present value of the bond should be above the par value.
c. If the coupon rate of a bond is below the investor's required rate of return, the present value of the bond should be below the par value.
d. If the coupon rate of a bond is equal to the investor's required rate of return, the present value of the bond should be equal to the par value.
e. All of these statements are correct.
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Answer #1

A is false. If the coupon rate is below the required rate, the present value will be below the par value.

B is True. If the coupon rate is higher than the required rate, the investor is at a profit and so the present value will be greater than the par value of the bond.

Cis True. If the coupon rate is below the required rate, the present value will be below the par value.

The price will be equal to the Par value if the required rate is equal to the coupon rate. Hence d is

correct

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