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Ivahew [28]
3 years ago
14

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 fo

r $1,197.93. 1) Is the YTM more or less than 10%
Business
1 answer:
NikAS [45]3 years ago
8 0

Answer:

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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