Final answer:
The bond with the lowest yield to maturity among the options given is the 7 percent coupon bond selling for $1,100 because it is priced above face value, leading to a capital loss at maturity despite its higher coupon rate.
Step-by-step explanation:
The question focuses on determining which of several $1,000 face value securities has the lowest yield to maturity. Yield to maturity (YTM) is a measure of the total return expected on a bond if the bond is held until it matures. A bond's yield to maturity takes into account all the payments from the bond, including both the interest payments and any capital gain or loss that will be experienced if the bond is bought at a price different from its face value.
If the bond is selling for more than its face value, as in option a, it will have a capital loss at maturity because it will only redeem for $1,000, meaning that although it has a high coupon rate, its YTM will be lower because the price is above face value. Conversely, a bond sold below its face value, as in option b, will have a capital gain at maturity, which increases its YTM. Given these considerations, the 7 percent coupon bond selling for $1,100 (option a) has the lowest yield to maturity because it is the only bond selling for more than its face value, and the investor will experience a capital loss when the bond matures at $1,000.