Question

A 15-year bond with a face value of $1,000 currently sells for $850.

Which of the following statements is CORRECT?

a. The bond's current yield exceeds its yield to maturity.
b. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.
c. The bond's yield to maturity is greater than its coupon rate.
d. The bond's coupon rate exceeds its current yield.
e. The bond's current yield is equal to its coupon rate.

Answer 1

Answer:

c. The bond's yield to maturity is greater than its coupon rate.

Explanation:

The coupon rate is that amount of bond which is calculated on the principal amount whereas yield to maturity is that rate which is held till maturity date and generate the investment till the maturity date.  

The relationship between the interest rate and the bond value is inverse. It means when the bond value is decrease than the interest is increase and vice versa. So it increases the yield to maturity and decreases the coupon rate