Which of the following is true?

Question

Quizplus · Accepted Answer

The coupon payment is the annual interest rate paid on the face value of a bond. It is calculated by multiplying the face value of the bond by the coupon rate.

Option A is incorrect. Shareholders are not entitled to be paid dividends before bondholders are paid interest. In fact, bondholders are paid interest before dividends are paid to shareholders.

Option B is also incorrect. The coupon payment is based on the current interest rate, which is determined at the time of issuance of the bond.

Option D is incorrect. When interest rates go up, bond prices actually fall, since newer bonds are issued at higher interest rates, making existing bonds with lower interest rates less attractive to investors.

Which of the Following Is True