A corporate bond has a coupon rate of 9%, a face value of $1,000, and ma- tures

ID: 2622561 • Letter: A

Question

A corporate bond has a coupon rate of 9%, a face value of $1,000, and ma-

tures in 15 years. Which of the following statements is most correct?

a. An investor with a required return of 10% will value the bond at more than

$1,000.

b. An investor who buys the bond for $900 will have a yield to maturity on the

bond greater than 9%.

c. An investor who buys the bond for $900 and holds the bond until maturity

will have a capital loss.

d. If the bonds market price is $900, then the annual interest payments on the

bond will be $81.

b. An investor who buys the bond for $900 will have a yield to maturity on the

bond greater than 9%.

Reason- If yield to maturity> coupon rate, bond sells for less than face value

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