Question

Choose the CORRECT statement from the following:

Select one:

a. If a bond’s yield to maturity exceeds its coupon rate, the bond’s current yield must be less than its coupon rate.

b. All else equal, an increase in interest rates will have a greater effect on higher-coupon bonds than it will have on lower-coupon bonds.

c. If two bonds have the same maturity, the same yield to maturity, and the same level of risk, the bonds should sell for the same price regardless of their coupon rates.

d. All else equal, an increase in interest rates will have a greater effect on the prices of short-term than long-term bonds.

e. If a bond’s yield to maturity exceeds its coupon rate, the bond’s price must be less than its maturity value.

Answer #1

Option e is correct option YTM exceeds coupon rate Price will be
lower.

Option a. is incorrect because when YTM is more than Coupon rate
price of bond will be less . Hence current yield will be higher due
to lower price of bond.

Option b is incorrect Interest rate changes affects lower coupon
rate more than higher coupon rate

Option c is false because for same price coupon rate and YTM should
be same.

Option d is false because interest rate affect is higher on higher
maturity bond.

Please Discuss in case of Doubt

Best of Luck. God Bless

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a. All else
equal, if a bond’s yield to maturity increases, its price will
fall.
b. All else
equal, if a bond is down graded by the rating agencies its yield to
maturity will increase.
c. If a
firm has two bond issues that are identical except one is
subordinate to the other, the subordinate issue will have a higher
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d. A B and
C are correct.
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The yield to maturity on a discount bond exceeds the bond's
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The higher the yield to maturity, the lower the current price
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All else equal, the current price of a bond increases when the
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The regular interest payment of a bond is called the coupon
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Which of the following statements is CORRECT?
One advantage of a zero coupon Treasury bond is that no one who
owns the bond has to pay any taxes on it until it matures or is
sold.
Long-term bonds have less price risk but more reinvestment risk
than short-term bonds.
If interest rates increase, all bond prices will increase, but
the increase will be greater for bonds that have less price
risk.
Relative to a coupon-bearing bond with the same maturity,...

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One advantage of a zero-coupon Treasury bond is that no one who
owns the bond has to pay any taxes on it until it matures or is
sold.
Long-term bonds have less price risk but more reinvestment risk
than short-term bonds.
If interest rates increase, all bond prices will increase, but
the increase will be greater for bonds that have less price
risk.
Relative to a coupon-bearing bond with the same maturity, a...

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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

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premium versus a zero liquidity premium for T-bonds, what is the
default risk premium on the corporate bond?
2. You project that you will need $50,000 in 9 years to put a
down payment on a home on a conventional mortgage program. You plan
to save for...

Which of the following is (are) true?
A) If the yield to maturity is greater than the coupon rate, the
bond will sell at a premium.
B) If the yield to maturity is less than the coupon rate, the bond
will sell at a premium.
C) Market prices and interest rates are positively
correlated.
D) all of the above

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bond's:
d. current yield is equal to the capital gain on the maturity of
the bond.
b. price must be less than its par value.
a. current yield is equal to the coupon rate.
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The bond’s coupon rate exceeds its current yield.
The bond’s current yield exceeds its yield to maturity.
The bond’s yield to maturity is greater than its coupon
rate.
The bond’s current yield is equal to its coupon rate.
If the yield to maturity stays constant until the bond matures,
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____ is the return of the bond when held to maturity.
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a. capital gain or loss
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d. current price
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