Which of the following are true concerning the distinction between interest rates and return?
A) The rate of return on a bond will not necessarily equal the interest rate on that bond.
B) The return can be expressed as the sum of the current yield and the rate of capital gains.
C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1.
D) All of the above are true.
E) Only A and B of the above are true.

Question

Quizplus · Accepted Answer

A) This is true as the rate of return on a bond takes into account both the interest earned and any capital gains or losses from changes in the price of the bond.
B) This is also true as the current yield measures the interest earned from a bond as a percentage of its current market price, while the rate of capital gains (or losses) reflects any changes in the price of the bond.
C) This statement is false, as a fall in the price of a bond will lead to a lower rate of return, which may be less than the interest rate on that bond. Therefore, choice D is incorrect.

Which of the Following Are True Concerning the Distinction Between