Question

Which of the following statements is most INCORRECT?

Select one:

a. All else equal, an increase in the required rate of return will result in a decrease in bond price.

b. All else equal, you expect a capital loss on this bond investment at maturity.

c. This is a premium bond because its required rate of return is smaller than the coupon rate.

d. If the bond is callable, the YTC is a better estimate of this bond's expected return.

e. All else equal, the current yield on a premium bond will be larger than its coupon rate.

Answer 1

OPTION E

Bond price is inversely proportional to required return hence Option A is correct

A premium bond's price decreases at maturity till it reaches par hence Option B is correct

A premium bond has price more than par value and required return smaller than the coupon rate hence Option C is correct

A callable bond has best estimate of yield as YTC hence Option D is correct

Current yield on premium bond is less than the coupon rate hence Option E is incorrect