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The coupon rate is less than the yield to maturity when the bond sells for less than par.
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- A bond will be priced at a discount to par value if its coupon rate is less than its yield-to-maturity (YTM). Select one: True FalseThe coupon rate is greater than the yield to maturity when a bond sells at a premium. Select one: True FalseFor a discount bond, the current yield isthe yield to maturity, and the coupon rate is the yield to maturity. Select one: O a. less than; less than O b. equal to; equal to O c less than; greater than O d. greater than; greater than O e. greater than; less than
- What will be the price of a bond in which the YTM is higher than the coupon rate? a. Below face value b. At face value c. Above face value d. Cannot be determinedThe inverted yield curve predicts that bond prices will fall. Select one: True OR FalseThe yield to maturity on a bond a is fixed in the indenture. b is lower for higher-risk bonds. c is the required return on the bond. d is generally equal to the coupon interest rate.
- If a bond sells for its par value, the coupon interest rate and yield to maturity are equal. True False *Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? O The bond is callable. O The probability of default is zero. Consider the case of Demed Inc.: Demed Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $950.35. However, Demed Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Demed Inc.'s bonds? Value YTM YTC If interest rates are expected to remai constant, what is the best estimate of the remaining life left for Demed Inc.'s bonds? O 5 years O 13 years O 18 years O 8 years…If a bond’s coupon rate is greater than the investor’s required rate of return on the bond, would the bond’s price be greater than or less than its par value? Explain.
- The current zero-coupon yield curve for risk-free bonds is as follows:Suppose that x is the continuously compounded yield to maturity on a zero-coupon bond that pays off $1 at time T. Assume that x follows the process: dx = a (x₁ - x) dt + sx dz where a, x0, and s are positive constants and dz is a Wiener process. What is the process followed by the bond price? Solutions:Given that market interest rates is higher then bond's coupon rate, the bond will: sell for less than par value. sell for more than par value. decrease its coupon rate. increase its coupon rate.