The market price of the bond will not go below the pure bond value regardless of what happens to the price of the common stock.

Question

Quizplus · Accepted Answer

The pure bond value is the value of the bond if it is treated as a standalone asset, without considering any other factors such as the stock price of the issuing company. Since the market price of a bond is influenced by various factors including interest rates, credit risk, and market demand, it can fluctuate. However, the market price will not go below the pure bond value as that would imply a negative yield, which is not realistic. Thus, the statement is true.

The Market Price of the Bond Will Not Go Below