Question

Which statement about yield is correct?

		For a coupon bond, if the yield is higher than the coupon rate, then price>100
		A zero-coupon bond may be priced above 100, assuming yield is positive
		For a given bond, the corresponding yield for price P1 is y1, and the yield for P2 is y2. If P1>P2, then y1<y2
		The yield of a corporate bond is usually lower than the yield of a treasury debt, assuming the same maturity and coupon rate

Answer 1

A higher yield as compared to the coupon rate indicates that the required return (yield) is more than the actual return (coupon), therefore forcing the bonds to be sold below the face valie of 100. Hence, statement is incorrect.

A zero coupon bond has a single final payout equal to the bonds face value of 100, irrespective of the price level. Hence, it cannot be price above its face value (assumed to be 100), assuming positive yield rates. Hence, the statement is incorrect

Bond Yields and Bond Prices are inversely related, owing to the bond price equation which has the yield in its denominator.Therefore, if P1>P2, y1 is bound to be less than y2. Hence, the statement is correct.

The yield of a corporate bond is always higher than a corresponding treasury debt because the corporate bond has a premium added to its yield which accounts for the corporate bond's default risk. Treasury bonds have no such risk premiums added owing to being backed by the full taxing power of the government. Hence, the statement is incorrect.

Therefore, the correct option is (c)