A 15-year corporate bond has an annual coupon of 8%. The bond is currently selling at par. Which of the following statements is CORRECT?

The bond’s yield to maturity is above 9%.

The bond’s expected capital gains yield is zero.

If the bond’s yield to maturity declines, the bond will sell at a discount.

The bond’s current yield is above 9%.

Question

jadeahughes2001 jadeahughes2001

14-04-2024
Business

contestada

A 15-year corporate bond has an annual coupon of 8%. The bond is currently selling at par. Which of the following statements is CORRECT?

The bond’s yield to maturity is above 9%.

The bond’s expected capital gains yield is zero.

If the bond’s yield to maturity declines, the bond will sell at a discount.

The bond’s current yield is above 9%.

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monremiszewska monremiszewska · Answer 1 · 2024-04-14T12:27:47+02:00

The correct statement is: "The bond’s current yield is above 9%."

Here's why:

1. **Yield to maturity (YTM)** represents the total return anticipated on a bond if held until it matures. Since the bond is selling at par (its face value), and its coupon rate (annual interest rate) is 8%, the YTM equals the coupon rate. So, the bond's YTM is 8%.

2. **Current yield** is the bond's annual coupon payment divided by its current market price. Since the bond is selling at par, the current yield is the same as the coupon rate. Therefore, the current yield is also 8%.

Therefore, since the coupon rate (and thus the current yield) is 8%, none of the statements mentioning a yield above 9% are correct.