Which of the following statements is most correct?
A) If a bond's yield to maturity exceeds its coupon rate, the bond's current yield must also exceed its coupon rate.
B) If a bond's yield to maturity exceeds its coupon rate, the bond's price must be less than its maturity value.
C) If two bonds have the same maturity, the same yield to maturity, and the same level of risk, the bonds should sell for the same price regardless of the bond's coupon rate.
D) Answers b and c are correct.
E) None of the answers above is correct.

Question

Quizplus · Accepted Answer

The statement in option B is correct. When a bond's yield to maturity exceeds its coupon rate, it implies that the bond is currently selling at a discount, which means its price is less than its maturity value. This is because the bond's interest payments are not enough to compensate for the yield required by investors in the market. Hence, the bond's price needs to decrease to satisfy this requirement. The other options are not necessarily true in all cases. For option A, it is possible for a bond's yield to maturity to exceed its coupon rate, but the current yield may not necessarily exceed the coupon rate. For option C, the bonds may not sell for the same price if their coupon rates are different.

Which of the Following Statements Is Most Correct