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Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is correct?
A. The bond's coupon rate exceeds its current yield.
B. The bond's yield to maturity is greater than its coupon rate.
C. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.
D. The bonds current yield exceeds its yield to maturity.

Respuesta :

ogorwyne

Answer:

The bond's yield to maturity is greater than its coupon rate.

Explanation:

At a discount, the price of the bond is less than its face value, from bond theory principles, this is likely to happen when YTM is more than the coupon rate of the bond. Due to this the present value of the coupons and their face value are going to be lower than 1000 since YTM is greater.

The coupon rate is given as annual interest divided by face value

While

The yield is interest/ current price.

The answer to the question is therefore

The bond's yield to maturity is greater than its coupon rate.

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