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A 5-year bond is selling at a discount. Which of the following statements is correct? Coupon...

A 5-year bond is selling at a discount. Which of the following statements is correct?

Coupon rate > current yield > YTM

Current yield > YTM > Coupon rate

YTM > current yield > coupon rate

Coupon rate > YTM > current yield
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Answer #1

The correct answer is YTM > Current Yield > Coupon rate

The bond value is the present value of all the cash flows it is going to generate over the years and the discount rate used for it is interest rate prevailing in the market, So, if the Yield (Interest rate) is higher then the coupon rate then it will lead to value less than par value which is termed as discount. So, In this condition YTM is Greater then coupon rate and the current yield is calculated as Annual coupon payment divided by market price of bond, which shows that the value will lies between the Coupon rate and the yield to maturity.

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