Final answer:
Bond C, which has a 10 percent coupon and is selling at face value ($1,000), offers the highest yield to maturity compared to the other options as it does not have any discount or premium, which would affect the yield.
Step-by-step explanation:
To determine which of the following $1,000 face-value securities has the highest yield to maturity, we need to consider the coupon rates and the selling prices:
- A. A 6 percent coupon bond selling for $1,000.
- B. A 5 percent coupon bond selling for $1,000.
- C. A 10 percent coupon bond selling for $1,000.
- D. A 10 percent coupon bond selling for $1,200.
The yield to maturity (YTM) is a measure of the annual return an investor can expect to earn if they hold the bond until it matures. It accounts for all coupon payments and the difference between the purchase price and the face value. The YTM is higher when the bond is purchased at a discount to its face value and lower when it is purchased at a premium.
In this case, bonds A, B, and C are all selling for their face value, so their yield to maturity will be equal to their coupon rates, being 6%, 5%, and 10% respectively. Bond D is selling for a premium, which means its yield to maturity will be less than its coupon rate of 10%.
Therefore, bond C, with a 10 percent coupon and selling for $1,000 (face value), provides the highest yield to maturity among the options provided, because it does not carry any premium or discount to its face value.