Discount

A rights offering lets existing shareholders:

1. A.Buy new shares at a discount to maintain proportional ownershipCorrect - preemptive rights prevent dilution.
2. B.Sell shares at a premiumRights run in the opposite direction on both counts. They allow a shareholder to buy additional shares, and the subscription price is set below the market rather than above it.
3. C.Convert bonds to stockExchanging debt for equity is the feature of a convertible bond and belongs to bondholders. A rights offering is directed at people who already own the common stock.
4. D.Receive an extra voteVoting power is protected here indirectly, not by handing out extra votes. Buying the newly offered shares keeps the holder's percentage of the company intact, which preserves the voting weight already held.

Why: Rights let current shareholders buy new shares at a discount to preserve their proportional ownership (anti-dilution).

Using discounted cash flow, a bond's value equals:

1. A.The sum of undiscounted couponsAdding coupons without discounting ignores the time value of money, which is the entire point of a discounted cash flow. It also omits the return of principal at maturity, usually the largest single cash flow.
2. B.The coupon rate times faceCoupon rate times face gives the annual interest payment in dollars, not the bond's price. That figure is an input to the valuation, one of the cash flows that must still be discounted back to today.
3. C.The present value of future coupons and principalCorrect - DCF discounts all future cash flows.
4. D.Always par valueA bond trades at par only in the special case where the required yield happens to equal the coupon rate. When market yields move away from the coupon, the discounted value moves to a premium or discount, which is why bonds fluctuate in price at all.

Why: A bond is worth the present value of its future coupon payments plus principal, discounted at the required yield.

Closed-end fund shares trade:

1. A.Only at NAV directly with the fundRedeeming with the fund at NAV is the defining feature of an open-end fund, and it is exactly what a closed-end fund does not offer. Having raised a fixed pool of capital once, it never buys shares back; an investor exits by selling to another investor on the exchange.
2. B.Only once a yearAnnual valuation belongs to illiquid private vehicles, not to a listed security. Closed-end shares change hands throughout each trading session at whatever price buyers and sellers agree on.
3. C.On an exchange at a market price that may differ from NAVCorrect - supply and demand set the price.
4. D.At NAV plus a fixed loadAt the initial offering a closed-end fund is sold with an underwriting spread built into the price, so this is not entirely foreign to the product. Once trading begins the fixed formula disappears: the price is set by supply and demand and can sit above or below NAV.

Why: After the IPO, closed-end fund shares trade on an exchange at a market price that can be at a premium or discount to NAV.

A bond is trading at a discount (below par). This tells you that...

1. A.Current market rates are lower than the coupon rateLower rates produce a premium, not a discount.
2. B.Current market interest rates are higher than the bond's coupon rateCorrect — a discount reflects market rates above the coupon.
3. C.The issuer has defaulted on the bondA discount reflects rates, not necessarily default.
4. D.The bond pays no interest at allA discount does not mean the bond is a zero-coupon; it reflects the rate gap.

Why: A bond trades below par when current market rates are higher than its coupon, so buyers demand a lower price to make up the yield difference.