Chapter 14

Question 1

BONDS: EFFECTIVE YIELD

HINT: “Effective” shoppers earn greater returns (i.e. effective yield) by buying “discounted¨ items with lower sticker prices (i.e. stated rate).

Answer 1

HINT:

“Effective” shoppers earn greater returns** (i.e. **effective yield) by buying “discounted¨ items with lower sticker prices (i.e. stated rate).

RULE:

For a discounted bond, its effective yield** is **greater than its stated rate.