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21 October, 14:01

Suppose a bond with a 10% coupon rate and semiannual coupons, has a face value of $1,000, 20 years to maturity and is selling for $1,197.93. 1) Is the YTM more or less than 10%

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  1. 21 October, 17:53
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    The YTM is less than 10%

    Explanation:

    If a coupon rate of a bond is greater than its yield to maturity (YTM), the bond is said to trade at a premium. The Bond's current price would be greater than its Face value

    If a coupon rate of a bond is less than its yield to maturity (YTM), the bond is said to trade at a discount. The bonds current price would be less than its face value

    In this Question, the bond's current price ($1,197.93) is greater than its face

    ($1,000) which means that the bond is trading at a premium. Therefore, we can conclude that the bond's YTM is less than its coupon payment. In this question the coupon rate is 10%, therefore the YTM should be less than 10%.
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Home » Business » Suppose a bond with a 10% coupon rate and semiannual coupons, has a face value of $1,000, 20 years to maturity and is selling for $1,197.93. 1) Is the YTM more or less than 10%
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