A 10-year bond with a 7% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT? Group of answer choices The bond is selling at its par value. The bond is selling at a premium. If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price. If the yield to maturity remains constant, the bond's price one year from now will be higher than its current price.
A 10-year bond with a 7% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT? Group of answer choices The bond is selling at its par value. The bond is selling at a premium. If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price. If the yield to maturity remains constant, the bond's price one year from now will be higher than its current price.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A 10-year bond with a 7% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?
Group of answer choices
The bond is selling at its par value.
The bond is selling at a premium.
If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price.
If the yield to maturity remains constant, the bond's price one year from now will be higher than its current price.
Expert Solution
Step 1
When yield to maturity is higher than the stated rate of interest, the bond will be issued at discount. When yield to maturity is lower than the stated rate of interest, the bond will be issued at premium. When yield to maturity is equal to the stated rate of interest, the bond will be issued at par.
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