The required return on a bond is likely to differ from the stated interest rate for either of two reasons: 1) economic conditions have changed, causing a shift in the basic cost of long-term funds, or 2) the firm's risk has changed.

Question

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The required return on a bond is influenced by various factors including economic conditions and the firm's risk, which can cause differences between the stated interest rate and the actual return that investors demand.

The Required Return on a Bond Is Likely to Differ