15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?
A)The bond's coupon rate exceeds its current yield.
B)The bond's current yield exceeds its yield to maturity.
C)The bond's yield to maturity is greater than its coupon rate.
D)The bond's current yield is equal to its coupon rate.
E)If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.

Question

Quizplus · Accepted Answer

The bond is selling at a discount, which means its yield to maturity is greater than its coupon rate. Therefore, option C is the correct statement. Option A is incorrect because if the coupon rate were greater than the current yield, then the bond would be selling at a premium, not a discount. Option B is incorrect because the yield to maturity is higher than the current yield. Option D is incorrect because the current yield is lower than the coupon rate. Option E is also incorrect because if the yield to maturity stays constant and the bond approaches maturity, the price will increase to its face value of $1,000.

15-Year Bond with a Face Value of $1,000 Currently Sells