Which of the following statements is most correct?
A) All else equal, a bond that has a coupon rate of 10 percent will sell at a discount if the required return for a bond of similar risk is 8 percent.
B) The price of a discount bond will increase over time, assuming that the bond's yield to maturity remains constant over time.
C) The total return on a bond for a given year consists only of the coupon interest payments received.
D) Both b and c are correct.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

A bond will sell at a discount if its coupon rate is lower than the required return, not higher. A discount bond's price increases over time as it approaches maturity, assuming yield to maturity remains constant. Total return includes both coupon payments and capital gains or losses, not just coupon payments.

Which of the Following Statements Is Most Correct