Question

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

Answer #1

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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