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What happens to the price of bond if interest rate falls

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Reference no: EM132005967

1. The duration of a ten-year, 6 percent coupon bond when the interest rate is 8 percent is 7.6 years. What happens to the price of the bond if the interest rate falls to 6 percent?

The price increases by 14.07%.

The price decreases by 14.07%.

The price increases by 2.00%.

The price decreases by 2.00%.

2. Which one of the following statement is true?

- A company’s sustainable growth rate is the minimum growth rate excluding any external equity financing while maintaining a constant debt-equity ratio.

- The sustainable growth rate assumes the debt-equity ratio is 1.0.

- The dividend payout ratio is defined as additions to retained earnings divided by net income.

- A company’s sustainable growth rate is the maximum growth rate achievable with unlimited debt financing.

- None of the above

Reference no: EM132005967

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