Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

Financial Accounting

11. Long Term Liabilities

Introduction to Bonds and Bond Characteristics

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Multiple Choice

Which of the following is true concerning interest rates on bonds?

When market interest rates rise, the market value of existing bonds falls.

The stated interest rate on a bond always changes with market conditions.

When market interest rates rise, the market value of existing bonds also rises.

Interest rates on bonds have no effect on their market value.

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Verified step by step guidance

Understand the relationship between market interest rates and bond prices: When market interest rates rise, the fixed interest payments of existing bonds become less attractive compared to newly issued bonds with higher rates. This causes the market value of existing bonds to decrease.

Analyze the first statement: 'When market interest rates rise, the market value of existing bonds falls.' This aligns with the inverse relationship between market interest rates and bond prices, making it a potentially correct statement.

Evaluate the second statement: 'The stated interest rate on a bond always changes with market conditions.' This is incorrect because the stated interest rate (coupon rate) is fixed at the time of issuance and does not change with market conditions.

Examine the third statement: 'When market interest rates rise, the market value of existing bonds also rises.' This contradicts the inverse relationship between market interest rates and bond prices, making it an incorrect statement.

Assess the fourth statement: 'Interest rates on bonds have no effect on their market value.' This is incorrect because market interest rates directly influence the market value of bonds due to the fixed nature of their coupon payments.