A 15-year bond with a face value of $1,000 currently sells for $1850. Which of the...

Question

Question

A 15-year bond with a face value of $1,000 currently sells for $1850. Which of the following statements is CORRECT?

A. The bond's current yield is equal to its coupon rate

B. The bond's coupon rate exceeds its current yield.

C. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850

D. The bond's current yield exceeds its yield to maturity.

E. The bond's yield to maturity is greater than its coupon rate

Answer 1

Answer #1

The asnwer is B. Coupon rate exceeds current yield

Coupon rate = Annual interest/face value

Current yield = interest/current price

Since current price is higher than face value, current yield will be lower than the coupon rate

The price will reach par value at maturity

YTM will be lower than the coupon rate since selling price is greater than par value

Answer 2

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