Answer to Question #23061 in Finance for carlos jimenez
a. Assume that two bonds have equal maturities and are of equal risk, but one bond sells at par
while the other sells at a premium above par. The premium bond must have a lower current
yield and a higher capital gains yield than the par bond.
b. A bond’s current yield must always be either equal to its yield to maturity or between its yield
to maturity and its coupon rate.
c. If a bond sells at par, then its current yield will be less than its yield to maturity.
d. If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
e. A discount bond’s price declines each year until it matures, when its value equals its par
b) is a correct answer.
a discount: YTM > current yield > coupon yield
a premium: coupon yield > current yield > YTM
par: YTM = current yield = coupon yield.
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