question 1 (1 point)\nwhich of the following is true concerning the distinction between interest rates and…

question 1 (1 point)\nwhich of the following is true concerning the distinction between interest rates and returns?\nthe rate of return on a bond will not necessarily equal the interest rate on that bond.\nthe return can be expressed as the difference between the current yield and the rate of capital gains.\nthe return can be expressed as the sum of the discount yield and the rate of capital gains.\nthe rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1.

question 1 (1 point)\nwhich of the following is true concerning the distinction between interest rates and returns?\nthe rate of return on a bond will not necessarily equal the interest rate on that bond.\nthe return can be expressed as the difference between the current yield and the rate of capital gains.\nthe return can be expressed as the sum of the discount yield and the rate of capital gains.\nthe rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1.

Answer

Brief Explanations:

The rate of return on a bond takes into account not only the interest received but also any capital - gains or losses from changes in the bond's price. So, it does not necessarily equal the bond's interest rate. The return is the sum of the current yield and the rate of capital gains (not the difference), and not related to discount yield in the way described. Also, when the bond price falls, there is a capital loss which reduces the rate of return, making it less than the interest rate in some cases.

Answer:

The rate of return on a bond will not necessarily equal the interest rate on that bond.