List I List II Bond rates and risk Description A. Coupon rate I. The interest rate required in the market on a bond B. Yield to maturity II. It is obtained by dividing annual coupon (stated interest payment) by the bond price C. Interest rate risk III. It germinates and originates from fluctuating interest rates D. Current (bond) yield IV. The annual coupon (stated interest payment) divided by the face value of a bond
Chose the correct answer from the option given below:
Bond Rates and Risk Matching Solution
This solution details the matching of key bond terminology from List I with their correct descriptions in List II, crucial for understanding bond valuation and risk.
Matching Bond Terms with Descriptions
- A. Coupon rate corresponds to IV. The annual coupon (stated interest payment) divided by the face value of a bond.
The coupon rate is the fixed percentage of the bond's face value that is paid out as interest annually.
- B. Yield to maturity corresponds to I. The interest rate required in the market on a bond.
Yield to maturity (YTM) represents the total annualised return an investor can expect if the bond is held until it matures. It reflects the current market's required rate of return.
- C. Interest rate risk corresponds to III. It germinates and originates from fluctuating interest rates.
Interest rate risk is the vulnerability of a bond's market price to changes in prevailing market interest rates. Rising rates typically decrease bond prices.
- D. Current (bond) yield corresponds to II. It is obtained by dividing annual coupon (stated interest payment) by the bond price.
Current yield measures the annual income generated by a bond relative to its current market price, not its face value.
Correct Answer Derivation
Based on the definitions:
- A (Coupon rate) is defined by IV (annual coupon / face value).
- B (Yield to maturity) is defined by I (market required rate).
- C (Interest rate risk) is defined by III (fluctuating interest rates).
- D (Current yield) is defined by II (annual coupon / bond price).
Therefore, the correct matching is A-IV, B-I, C-III, D-II.
Important Questions from Business Finance
Match List I with List II
List I
List II
Option strategies
Description(s)
A.
Protective put
I.
Buying an asset along with a put on it
B.
Covered call
II.
Buying a call as well as put options on an asset at the same exercise price
C.
Long straddle
III.
Combining two or more options on the same asset with differing exercise prices or times to maturity
D.
Spread
IV.
Writing a call position on an asset along with buying the asset
Choose the correct answer from the options given below:
In order to shorten its operating cycle, a manufacturing company focuses on which of the following decisions ?
A. Reducing operating expenses
B. Enhanced coordination of firm activities
C. Manufacturing automation
D. Longer production schedule
E. Tightening credit policy
Choose the correct answer from the options given below:
Match List I with List II:
List I
List II
A.
Margin of Safety I.
Profit × sales/PV Ratio B.
Break Even Point II.
Difference between total revenue and total variable costs C.
P V Ratio III.
Total Sales-Total Variable Cost / Total Sales D.
Contribution IV.
Equality between contribution and total fixed costs.
Choose the correct answer from the options given below:Identify the components of the credit policy of a business firm from the following:
A. Collection policy
B. Factoring
C. Credit rating
D. Credit analysis
E. Terms of sale
Choose the correct answer from the options given below:
A new issue debt or shares will invariably involve floatation costs in the form of:
(A) Legal fees
(B) Administrative expenses
(C) Brokerage
(D) Underwriting
(E) Risk premium
Choose the most appropriate answer from the options given below:
