Which of the following statements is CORRECT? Select one: a. If a coupon bond is

Question

Which of the following statements is CORRECT?

Select one:

a. If a coupon bond is selling at par, its current yield equals its yield to maturity.

b. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.

c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond.

d. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.

e. If a bond’s yield to maturity exceeds its annual coupon, then the bond will trade at a premium.

Explanation / Answer

A is correct because when coupon bond is selling at par , coupon rate = ytm.

Current yield = coupon / price however, in case of bond selling at par, price = par value , thus current yield = coupon rate = ytm

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