Which of the following statements is CORRECT? a. If a coupon bond is selling at par, its current yield equals its yield to maturity. b. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity. c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond. d. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium. e. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.

Which of the following statements is CORRECT? a. If a coupon bond is selling at par, its current yield equals its yield to maturity. b. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity. c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond. d. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium. e. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.

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 3Q: The rate of return on a bond held to its maturity date is called the bonds yield to maturity. If...

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Which of the following statements is CORRECT? a. If a coupon bond is selling at par, its yield to maturity is equal to zero. b. If a coupon bond is selling at a discount, its price will continue to increase until it reaches its par value at maturity. c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond. d. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a discount. e. If a coupon bond, is selling at a premium, its yield to maturity is equal to zero. ANSWER IS NOT C
For a bond that is currently selling for par value (i.e., $1000). which one of the following relationships is correct (note: assume that all factors, other than the one mentioned, remain constant)? O 1) if the coupon rate increases, the bond price will remain the same. 2) if the coupon rate increases, the bond price will decrease. 3) if the yield to maturity decreases, the bond price will decrease. O 4) if the term to maturity increases, the bond price will remain the same. O 5) if the yield to maturity increases, the bond price will remain the same.
One of the above is the most accurate statement?a. A bond is trading at a premium if its yield to maturity approaches its annual coupon.b. As interest rates rise, a 10-year coupon bond's relative price adjustment would be higher than that of a 10-year nil coupon bond.c. A coupon bond's present yield matches the yield to maturity whether it sells at par.d. Both a and c are true.e. None of the above claims are true.
Which are TRUE about the inverse relationship between price and yield: a. when interest rates rise; bond prices fall b. interest rates have no effect on the price of a zero-coupon bond c. when yields go up; prices go down d. the yield on a 30-year bond goes up when interest rates go up
(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? (b) In the next period however, the interest rate changes unexpectedly to i 0 . What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i 0 > i? (c) Suppose alternatively that the market expects that the interest rate will change to i 0 after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?
(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remainunchanged. What will be the price of the consol today? (b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i'> i? (c) Suppose alternatively that the market expects that the interest rate will change to i' after the initial period. What is the initial value of the consol, and whatis the yield from selling it after one period?
The rate of return that you would earn if you bought a bond and held It to its maturity date is called the bond's yield to maturity (YTM). If Interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to Its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price? Briefly explain with necessary numerical data.
Which one of the following will decrease the current yield of a bond? changing the frequency of coupon payment from semi-annual to annual. increasing the face value. increasing the coupon rate. decreasing the yield to maturity. decreasing the bond price.
Assuming that the market and coupon rates remain constant till maturity; a.the bond's price will remain constant over time b.No option is correct c.the bond price will approach its market value over time d.the bond's price will approach its face value over time
(Using algabreic formula to answer) (a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today?(b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i' > i? (c) Suppose alternatively that the market expects that the interest rate will changeto i' after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?
What is TRUE about the inverse relationship between price and yield:I. when interest rates rise; bond prices fallII. interest rates have no effect on the price of a zero-coupon bondIII. when yields go up; prices go downIV. the yield on a 30-year bond goes up when interest rates go up
The rise and fall of a bond's price has a direct inverse relationship to its yield to maturity, or interest rate. As prices go up, the yield declines and vice versa. For example, a $1,000 bond might carry a stated annual yield, known as the coupon of 8%, meaning that it pays $80 a year to the bondholder. If that bond was bought for $870, the actual yield to maturity would be 9.2% ($80 annual interest on $870 of principal). Do you agree with this analysis? Briefly explain.

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	a.	If a coupon bond is selling at par, its current yield equals its yield to maturity.
	b.	If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.
	c.	If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond.
	d.	If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium.
	e.	If a coupon bond is selling at a premium, its current yield equals its yield to maturity.