Final answer:
The statement about the final payment of $1,095 for a bond with a $1,000 face value and $50 annual coupon is false. The correct final payment is $1,050, reflecting the bond's face value and last coupon payment.
Step-by-step explanation:
The statement that the final payment bondholders will receive is $1,095 is false. At maturity, bondholders receive the face value of the bond, which is $1,000, plus the last annual coupon payment. For a bond with a $1,000 face value and an annual coupon of $50, the final payment will be $1,050, not $1,095. The yield to maturity (YTM) reflects the total returns, including both interest payments and any capital gains or losses, if the bond is held to maturity. The coupon rate on the bond is not directly related to the YTM; the YTM adjusts with changes in market interest rates.
Your confusion may stem from misunderstanding the relationship between a bond's coupon rate, its face value, and the yield to maturity. If interest rates rise, existing bonds with lower coupon rates become less attractive and may sell for less than their face value, thus increasing their yield to meet the market. Conversely, if interest rates fall, existing bonds with higher coupon rates increase in value and sell for more than their face value, which reduces their yield.