Which of the following statements is most correct?
A) Rising inflation makes the actual yield to maturity on a bond greater than the quoted yield to maturity which is based on market prices.
B) The yield to maturity for a coupon bond that sells at its par value consists entirely of an interest yield; it has a zero expected capital gains yield.
C) On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.
D) The market value of a bond will always approach its par value as its maturity date approaches. This holds true even if the firm enters bankruptcy.
E) All of the statements above are false.

Question

Quizplus · Accepted Answer

The yield to maturity for a coupon bond that sells at its par value consists entirely of an interest yield - this is because the bondholder does not receive a capital gain or loss on the investment when the bond matures. Thus, the yield to maturity for a coupon bond that sells at its par value consists entirely of the bond's interest yield. The other statements are incorrect.

Which of the Following Statements Is Most Correct