GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Intrinsic Value > Market Value
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Intrinsic Value < Market Value
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Market Value = Redemption Value
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Market Value < Redemption Value
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Detailed explanation-1: -If the intrinsic value of the bond is higher than the market value, then it indicates that the bond is under-priced and hence the investor would buy it. Therefore, an investor would buy a bond if the intrinsic value is higher than the market value.
Detailed explanation-2: -Some of the characteristics of bonds include their maturity, their coupon (interest) rate, their tax status, and their callability. Several types of risks associated with bonds include interest rate risk, credit/default risk, and prepayment risk. Most bonds come with ratings that describe their investment grade.
Detailed explanation-3: -What are bonds? A bond is a debt security, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.
Detailed explanation-4: -Bonds are units of corporate debt issued by companies and securitized as tradeable assets. A bond is referred to as a fixed-income instrument since bonds traditionally paid a fixed interest rate (coupon) to debtholders. Variable or floating interest rates are also now quite common.