Question

If a 10 year bond has a $10 coupon and the market price = $975 then...

If a 10 year bond has a $10 coupon and the market price = $975 then the yield to maturity is greater than 1%.

True

False

According to the rating agency, Standard and Poor's, a AAA rated corporate bond never defaults while a A rated bond may.

True

False

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Answer #1

Answer : True .

Calculation of Yield to Maturity :

Using RATE function of Excel

=RATE(nper,pmt,pv,fv)

where

nper is the number of years to maturity i.e 10

pmt is coupon payment i.e 10

pv is the current Price i.e 975

fv is future value i.e 0

=RATE(10,10,-975,1000)

The yield to maturity is 1.27% which is greater than 1

Answer : 2) True .

According to the rating agency, Standard and Poor's, a AAA rated corporate bond never defaults while a A rated bond may.As AAA rated Bonds are given their ranking based on the fact that they never default.

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