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A bond with a face value of $1,000 is currently traded at a price of $1,154.33....

A bond with a face value of $1,000 is currently traded at a price of $1,154.33. If the coupon rate of the bond is 6.00%, which one of the following is the most feasible yield to maturity of the bond?

  • 5.55%

  • 6.00%

  • 6.66%

  • not enough information to determine
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Answer #1

Correct answer: 5.55%

When price of Bond is greater than face value of bond then yield to maturity must be less than coupon rate of bond.

In given case,

Coupon rate = 6%

and Bond Price is greater than Face value of Bond.

Yield to maturity of Bond must be less than Coupon rate of bond.

5.55% is less than 6.00%

Thus, 5.55% is the most feasible yield to maturity of the Bond.

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