Which of the following statements is NOT CORRECT? 0 a. If a bond is selling at a

Question

Which of the following statements is NOT CORRECT? 0 a. If a bond is selling at a premium, its current yield will be greater than its yield to maturity. b. If a bond is selling at its par value, its current yield equals its yield to maturity c. All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons. O d. All else equal, bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities. O e. If a bond is selling at a discount to par, its current yield will be less than its yield to maturity.

Explanation / Answer

The interest rate risk is influenced by time to maturity of the bond and coupon rate of the bond. It means the larger coupons (size of the coupons) do not increase the interest rate risk of the bond with smaller coupons.

Therefore, the incorrect statement is "All else equal, bonds with larger coupons have greater interest rate risk than bonds with smaller coupons.

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