Question

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.

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.

When the discount rate or yield to maturity is lower than the
coupon rate the bond price is less than its par value.
a. True
b. False

The face value of the bond is paid at the maturity of the
bond.
True
False
Which of the following is used as a discount rate while
calculating the bond price?
Yield to Maturity (YTM)
Coupon Rate
Face Value
None
Coupon payments are determined by multiplying face value of the
bond with the coupon rate.
True
False
Which of the following explains the differences in interest
rates?
The length of the investment (maturity premium).
The level of risk of the...

What is yield to maturity of $1000 face-value 8% coupon bond
with a selling price of $1010 that has 1 year left to maturity?
Assuming no inflation, under what conditions will this coupon bond
have a negative yield (think about its selling price)? What about
any coupon bond with any maturity?

If the coupon rate is equal to the yield to maturity on a bond,
then the price of the bond is always equal to the par value.
Is this statement true or false? Explain and support your answer
with an example.

If a bond's yield to maturity exceeds its coupon rate, the
bond's:
d. current yield is equal to the capital gain on the maturity of
the bond.
b. price must be less than its par value.
a. current yield is equal to the coupon rate.
c. maturity value is more than its face value.

If an investor pays more for a bond than the bond’s face
(maturity) value, the yield that the investor will earn, if they
hold that bond until maturity, will be a higher value than the
bond’s coupon.
a) True
b) False
* Explain why?

1. The face value of the bond is paid at the maturity of the
bond. True or false?
2. Which of the following is used as a discount rate while
calculating the bond price?
Yield to Maturity (YTM)
Coupon Rate
Face Value
None
3. Coupon payments are determined by multiplying face value of
the bond with the coupon rate. True or false?
4. Which of the following explains the differences in interest
rates?
The length of the investment (maturity premium)....

Question 1 of 71
The yield to maturity on a coupon bond is …
· always greater than the
coupon rate.
· the rate an investor
earns if she holds the bond to the maturity date, assuming she can
reinvest all coupons at the current yield.
· the rate an investor earns
if she holds the bond to the maturity date, assuming she can
reinvest all coupons at the yield to maturity.
· only equal to the internal
rate of return of a bond...

If a bond with face value of $1,000 and a coupon rate of 8% is
selling at a price of $1,070, which of the following regarding the
bond's yield to maturity is correct?
Yield to maturity is less than 8%.
Yield to maturity is more than 8%.
Yield to maturity equals 8%.
None of the above is correct.

Calculate the yield to maturity on the following bonds:
A 9.4 percent coupon (paid semiannually) bond, with a $1,000
face value and 19 years remaining to maturity. The bond is selling
at $965.
An 8.4 percent coupon (paid quarterly) bond, with a $1,000 face
value and 10 years remaining to maturity. The bond is selling at
$901.
An 11.4 percent coupon (paid annually) bond, with a $1,000 face
value and 6 years remaining to maturity. The bond is selling at...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 18 minutes ago

asked 30 minutes ago

asked 42 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 3 hours ago