Question

In: Finance

bonds represent liability of a firm and provide return in the form of income and capital...

bonds represent liability of a firm and provide return in the form of income and capital gain?

T or F

The movement S&p500 index stock is the most important factor in determining price changes of bonds in the market?

T 0r F

Solutions

Expert Solution

bonds represent liability of a firm and provide return in the form of income and capital gain?
TRUE
Firms raise capital by issuing bonds to the public.
The bond holder receives interest/coupon payments from the firm until maturity and at the time of maturity the bondholder receives
the principal.
In addition, the price of the bond varies according to interest rates. In other words, when interest rates
fall bond prices increase and when interest rates rise bond prices decrease.
The movement S&p500 index stock is the most important factor in determining price changes of bonds in the market?
FALSE.
What determines the price changes of bonds in the market are a change in interest rates.
In other words, when interest rates fall bond prices increase and when interest rates rise bond prices decrease.

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