Which of the following $5,000 face-value securities has the highest 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 is the effective interest rate that the investor will earn from the bond. The higher the coupon rate, the lower the yield to maturity because the investor is earning more interest income. Conversely, the lower the price of the bond, the higher the yield to maturity because the investor is paying less for the same future cash flows. Therefore, the 12 percent coupon bond selling for $4,500 has the highest yield to maturity as it offers the highest coupon rate and is selling at a lower price compared to the other options.

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