Question

Which of the following are true of coupon bonds?

a) They have a fixed interest rate.
b) Interest is paid to bondholders periodically.
c) They have no maturity date.
d) The bond price is inversely related to market interest rates.

Answer 1

Coupon bonds have a fixed interest rate, pay interest periodically, have a maturity date, and their price is inversely related to market interest rates.

Step-by-step explanation:

Coupon bonds refer to bonds that pay periodic interest payments, known as coupons, to bondholders. Here are the correct statements about coupon bonds:

1. They have a fixed interest rate: Coupon bonds typically have a fixed interest rate, which means the interest rate remains the same throughout the life of the bond.
2. Interest is paid to bondholders periodically: Bondholders receive interest payments at regular intervals, such as annually or semi-annually, depending on the terms of the bond.
3. They have a maturity date: Coupon bonds have a specific maturity date, which is the date when the bond issuer repays the entire face value of the bond to the bondholders.
4. The bond price is inversely related to market interest rates: Coupon bond prices are inversely related to market interest rates. When interest rates rise, the value of existing coupon bonds decreases, and vice versa.