A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 10 years ago. The bond currently sells for $1,000 and has 8 years remaining to maturity. This bond's ______________ must be 10%.
I. yield to maturity, II. coupon rate
a. Neither I not II
b. I only
c. I and II
d. II only
Face value of the bond = $1000
Annual coupon payment = $100
Annual coupon rate = Annual coupon payment/Face Value = 100/1000 = 10%
Time to maturity = 8 years
Current price of the bond = $1000
YTM Calculation
Since, the current price of the bond = Face value of the bond, we can say that the bond is trading at par. If a bond trades at par then YTM = Coupon rate
So, YTM of the bond = 10%
Therefore, Answer is both YTM and coupon rate is 10% (Option C)
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