A 8-year bond with a face value of $1,000 currently sells for $1150. Which of the following statements is right Group of answer choices a)The bond’s current yield is less than its yield to maturity b)The bond’s yield to maturity is less than its coupon rate. c)The bond’s coupon rate exceeds its current yield. d)The bond’s yield to maturity is greater than its coupon rate.
A 8-year bond with a face value of $1,000 currently sells for $1150. Which of the following statements is right Group of answer choices a)The bond’s current yield is less than its yield to maturity b)The bond’s yield to maturity is less than its coupon rate. c)The bond’s coupon rate exceeds its current yield. d)The bond’s yield to maturity is greater than its coupon rate.
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 8-year bond with a face value of $1,000 currently sells for $1150. Which of the following statements is right
Group of answer choices
a)The bond’s current yield is less than its yield to maturity
b)The bond’s yield to maturity is less than its coupon rate.
c)The bond’s coupon rate exceeds its current yield.
d)The bond’s yield to maturity is greater than its coupon rate.
Expert Solution
Step 1
Value of a bond:
Value of a bond is the present value of the future cash flows discounted at a required rate of return. Future cash flows include coupon amount and face value of the bond.
Value of the bond depends on the following factors:
- Coupon rate
- Yield to maturity
- Years to maturity
In the market bond can be trade at par, discount, or at premium.
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