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A $1000 par value corporate bond that pays $60 annually in interest was issued last year. Which one of these would apply to this bond if the current price of the bond is $996.20?

A) The bond is currently selling at a premium.

B) The current yield exceeds the coupon rate.

C) The bond is selling at par value.

D) The current yield exceeds the yield to maturity.

E) The coupon rate has increased to 7 percent.

Respuesta :

abdullahfarooqi

Answer:

B) The current yield exceeds the coupon rate.

Explanation:

As bond is selling at discount to par, so current yield exceeds coupon rate.

Parrain

Answer: B) The current yield exceeds the coupon rate.

Explanation:

The bond described above is a DISCOUNT BOND.

Discount Bonds are bonds that are issued at a price less than their oar value or a bond currently trading below it's part value in the secondary market.

The reason for this is that market interest rates EXCEED the Coupon rate of the bond. In other words, when the Yield/market Interest exceeds the Coupon rate, the price of a bond drops below it's par value.

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