Question

Choose the CORRECT statement from the following: Select one: a. If a bond’s yield to maturity...

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.

Homework Answers

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
Please Rate Well


Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which of the following statements is most correct? a.         All else equal, if a bond’s yield to...
Which of the following statements is most correct? 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 yield to maturity than the other issue. d.         A B and C are correct. e.         None of...
Choose all correct statements. The yield to maturity on a discount bond exceeds the bond's coupon...
Choose all correct statements. The yield to maturity on a discount bond exceeds the bond's coupon rate The higher the yield to maturity, the lower the current price of the bond. All else equal, the current price of a bond increases when the coupon rate decreases. The regular interest payment of a bond is called the coupon payment.
Which of the following statements is CORRECT? One advantage of a zero coupon Treasury bond is...
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,...
Which of the following statements is CORRECT? One advantage of a zero-coupon Treasury bond is that...
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, a...
Choose all correct statements. 1.The yield to maturity on a premium bond exceeds the bond's coupon...
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
1. If 9-year T-bonds have a yield of 2.9%, 9-year A-rated corporate bonds yield 4.8%, the...
1. If 9-year T-bonds have a yield of 2.9%, 9-year A-rated corporate bonds yield 4.8%, the maturity risk premium on all 9-year bonds is 1.2%, and A-rated corporate bonds have a 0.6% liquidity 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...
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
If a bond's yield to maturity exceeds its coupon rate, the bond's: d. current yield is...
If a bond's yield to maturity exceeds its coupon rate, the 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. c. maturity value is more than its face value.
A 15-year bond with a face value of $1,000 currently sells for $850. Which of the...
A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? 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, the bond’s price will remain at $850.
11. ____ is the return of the bond when held to maturity. Select one: a. Discount...
11. ____ is the return of the bond when held to maturity. Select one: a. Discount rate b. Yield to maturity c. Nominal rate d. Coupon rate 12. The expected return of a stock for a year is equal to expected dividend plus ____ divided by purchase price of the stock. Select one: a. capital gain or loss b. purchase price c. expected price d. current price 13. A manager of a bond portfolio, with the expectation of a fall...