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Current yield and yield to maturity concepts

American Fortunes is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct?
(I.) The initial selling price of each bond will be $1,000.
(II.) After the bonds have been outstanding for 1 year, you should use 9 as the number of compounding periods when calculating the market value of the bond.
(III) Each interest payment per bond will be $40.
(IV) The yield to maturity when the bonds are first issued is 8%.

A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and III only
E. I, III, and IV only

The total rate of return earned on a stock is comprised of which two of the following? (I) current yield (II) yield to maturity (III) dividend yield (IV) capital gains yield

A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only

Solution Preview

American Fortunes is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct?
(I.) The initial selling price of each bond will be ...

Solution Summary

Current yield and yield to maturity concepts are explored.

$2.19