Question

Based upon historic information there is no relationship between bonds ratings and the frequency of default.

True

False

Flag this Question

A bond has a $1,000 par value, the annual coupon interest rate equals 10% (the bond makes annual interest payments of $100), has 5 years to maturity, cannot be called, is not a convertible bond and is not expected to default. The bond should sell at a premium if the yield to maturity is below 10% and at a discount if the yield to maturity is greater than 10%.

Group of answer choices

True

False

Answer 1

1. The given statement is FALSE because historic informations are providing with the fact that when the credit ratings will be higher, it will mean that the bonds are less likely to default, and when the credit rating will be lower, the bonds are defaulting more.

2. The given statement is TRUE because when the yield to maturity is lower than coupon rate the bond will be selling at a premium.

When the yield to maturity is higher than the coupon rate, the bond will be selling at a discount.