Question

A 15-year bond with a face value of $1,000 currently sells for $850. Which of the...

A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?

The bond’s coupon rate exceeds its current yield.

The bond’s current yield exceeds its yield to maturity.

The bond’s yield to maturity is greater than its coupon rate.

The bond’s current yield is equal to its coupon rate.

If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850.
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Homework Answers

Answer #1

Given,

Face value = $1000

Price = $850

Solution :-

Relationship between yield to maturity and coupon rate : The relation between yield to maturity and coupon rate is such that when the yield to maturity is greater than coupon rate, price of the bond is be less than its face value and when yield to maturity is less than coupon rate, price of the bond is greater than its face value.

Here, price of the bond is less than its face value. It means the bond's yield to maturity is greater than its coupon rate.

ANSWER : "The bond’s yield to maturity is greater than its coupon rate"

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