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Bond value, yield to maturity, coupon rate, current yield

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Which of the following statements is the most correct and why?

A.If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
B. If a bonds sell at par, then its current yield will be less than yield to maturity.
C. Assuming that both are held to maturity and are equal risk, a bond selling for more than par with ten yrs to maturity will have a lower current yield and higher capital gain relative to bond that sells at par.
D.Anwers are A and C
E. None of the anwers above

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Solution Preview

Which of the following statements is the most correct and why?

A .If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
B. If a bonds sell at par, then its current yield will be less than yield to maturity.
C. Assuming that both are held to maturity and are equal risk, a bond selling for more than par with ten yrs to maturity will have a lower current yield and higher capital gain relative to bond that sells at par.
D. Answers are A and C ...

Solution Summary

A multiple choice question on bon values has been answered.

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Current Yield and Yield to Maturity of a bond

You hold a 10-year-maturity coupon bond that was issued 9 years ago with a coupon rate of 10%. If the interest rate on 1-year bonds is now at 5%, calculate the current yield and yield to maturity for your 10-year-maturity bond, and compare these with the coupon rate. If the interest rate on the 1-year bonds is now at 12%, calculate the current yield and yield to maturity for your 10-year-maturity coupon bond, and compare these with the coupon rate. What have you learned from these calculations?

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