Question

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?

a. 5.55%

b. 6.00%

c. 6.66%

d. not enough information to determine

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Answer #1

The yield to maturity of the bond should be lower than the coupon rate because the bond is selling at a premium.

So, the correct answer is option a. 5.55%

Option b is incorrect because if the yield to maturity of the bond is 6.00% (equal to the coupon rate) then the price of the bond must be $1,000

Option c is incorrect because if the yield to maturity of the bond is greater than the coupon rate at 6.66%, then the price of the bond must be lower than $1,000

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