Question

Which of the following are fringe institutions? a. pay day loan centers b. insurance companies c....

Which of the following are fringe institutions?

a.

pay day loan centers
b.

insurance companies
c.

mutual savings banks
d.

branches of Citigroup
e.

credit unions

If a coupon bond is priced above its face value, then

a.

the yield to maturity is greater than the coupon rate.
b.

the yield to maturity is less than the coupon rate.
c.

the yield to maturity is equal to the coupon rate.
d.

the current yield is less than the coupon rate
e.

none of the above
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Homework Answers

Answer #1

1.

fringe institutions: a. pay day loan centers

2.

If a coupon bond is priced above its face value, then

b. the yield to maturity is less than the coupon rate.

There is relationship between YTM, coupon rate and Market price of Bond:

When YTM = Coupon rate, Price of Bond = Face value

When YTM > Coupon rate , Price of Bond < Face value

When YTM < Coupon rate, Price of Bond > Face value

please note: the current yield is less than the coupon rate, this statement also correct because current yield always lies between coupon rate and YTM. Thus, when YTM less than Coupon rate then current yield would be less than coupon rate and greater than YTM.

( At par price, YTM=Coupon rate=Current yield)

Current yield = Coupon payment/Current price of Bond.

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