Question

Choose all correct statements.

1.The yield to maturity on a premium bond exceeds the bond's coupon rate

2.The higher the yield to maturity, the lower the current price of the bond.

3.All else equal, the current price of a bond increases when the coupon rate decreases.

4.The regular interest payment of a bond is called the coupon payment. Group of answer choices

Answer 1

If the coupon rate of a bond is higher than it's yield to maturity then the bond will sell at a premium .

Yield to maturity is used to discount the future coupon payments on a bond so as to determine the current price of bond, hence higher the yield to maturity , Lower will be current price of bond.

As already discussed above that the current price of a bond is determined by discounting it's future coupon payments, hence if the coupon rate increase the bond current price will also increase

Coupon payments are fixed interest payments which are paid regularly on a bond.

Hence 2nd and forth statements are correct