Answered: A 10-year bond with a 9% annual coupon…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 12P: Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may...

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Question

A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

Group of answer choices

If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price.

The bond is selling below its par value.

The bond is selling at a discount.

The bond's current yield is greater than 9%.

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 Introduction

This question provides that the Coupon rate is higher than the yield to maturity. It means the bond is selling at a premium.

Therefore the return yearly is more than the yield to maturity it implies the bond is trading at higher values, so in one year the values tend to become lower than the current value of the bond.

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