Which of the following $5,000 face-value securities has the highest yield to maturity?
A)a 6 percent coupon bond selling for $5,000
B)a 6 percent coupon bond selling for $5,500
C)a 10 percent coupon bond selling for $5,000
D)a 12 percent coupon bond selling for $4,500

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the total return anticipated on a bond if held until it matures. YTM takes into account the bond's current market price, par value, coupon interest rate, and time to maturity. The higher the YTM, the more attractive the bond is as an investment. In this case, the bond with the highest coupon rate is D with a 12 percent coupon bond. Since the coupon rate is higher than the other options, the YTM is likely to be higher as well. Additionally, the fact that it is selling at a discount for $4,500 indicates a higher YTM. Option A has a lower coupon rate and is selling at par, so it has a lower yield. Option B's higher price offsets the higher coupon rate, resulting in a YTM similar to option A. Option C's coupon rate is higher than options A and B, but the fact that it is selling at par indicates that its YTM is similar to the other options. Therefore, option D is the best choice.

Which of the Following $5,000 Face-Value Securities Has the Highest