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True or False and Explain The yield to maturity of a coupon bond that is selling...

True or False and Explain

The yield to maturity of a coupon bond that is selling for less than its face value is less than the coupon rate.

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Answer #1

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity and if all payments are made as scheduled.

The given statement is false as the yield to maturity of a coupon bond is less than the coupon rate, when the coupon bond sells at a premium, ie, at a price greater than its face value.


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