Green Roof Inns is preparing a 6 percent annual coupon bond which matures 5 year

Question

Green Roof Inns is preparing a 6 percent annual coupon bond which matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Question 1 options:

a) The current yield-to-maturity is greater than 6 percent. b) The current yield is 6 percent. c) The next interest payment will be $30. d) The bond is currently valued at one-half of its issue price. e) You will realize a capital gain on the bond if you sell it today.

Explanation / Answer

You will realize a capital gain on the bond if you sell it today.

since the rate is lesser than coupon rate, the bond will sell at a premium

You will realize a capital gain on the bond if you sell it today.

since the rate is lesser than coupon rate, the bond will sell at a premium

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