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Hello Sir, can you please explain this statement’s answer?
”Investors’ required returns will generally be lower
with deep discounted bonds””The statement is false – the price investors buy the bonds at reflects the risks
and, hence, the required return. Thus the precise nature of the cash flows associated
with a bond (e.g. coupon rate) are not important. ”I have no idea who ‘Kevin Dutton’ is !!!
The investors required rate of return depends on general interest rates and the level of risk in the investment. It is irrelevant what the coupon rate is or what the terms of repayment are.
The market value is affected, because as always the market value is the present value of the future receipts discounted at the required rate of return.
I’m sorry for not mentioning Kevin Dutton is the name of the Question from Kaplan Kit.
Thanks a zillion!!
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