Question

Is the required rate of return the same as the opportunity cost of owning a bond?

Answer 1

Bond is the type of loan which can deemed as securities issues by the company. Such bond carries the face value of monetary returns which are gained back when the buyers gets after the maturity of the bond for the specific time period. Rate of return in the form of high monetary gain depends upon the feasibility and nature of bond. The factors influences the good return of bond can be very useful to determine to prove the required rate of return and the opportunity cost have the same frequency of benefits which actually owes to the bond.

Every bond holder expect the high rate of return. But projecting into the process of holding need huge analysis of procuring it for long-term basis. The holder always choose the choice the bond which will return the high rate of interest. The holder of the bond also takes the consideration when then currency has stable value when the bond matures at the maturity period. For example, if the Bond A has higher price with less of interest. On the other side if Bond B has lower price with high rate of interest. Obviously, The bond holder will choose only Bond B as it gives high rate of interest in short-term period. The concept of choosing the Bond B with favorable features is known as Opportunity Cost. And also the rate of interest when it equalize as the benefits of opportunity cost when it assumes the assured monetary gain after deducting from the parting cost of the buying the bond as the asset flow of monetary income of return. Above facts prove that the opportunity cost and the rate of interest has the same feature when we owe the various bonds.