Question

If a bond with face value of $1,000 and a coupon rate of 8% is selling at a price of $970, is the bond’s yield to maturity more or less than 8%?

Answer 1

Answer:

The bond's yield to maturity will be more than 8%.

Explanation:

The face value of the bond is $1,000.

The coupon rate is 8%.

The selling price is given at $970.  

The selling price is lower than the face value. This indicates that this a discounted bond. The yield to maturity for a discounted bond is higher than the coupon rate.  

So, the bond's yield to maturity will be more than 8%.