Question

An eight percent (8%), twenty (20) year bond selling at a discount will have a:

a. current yield higher than its yield to maturity.
b. call feature.
c. stated yield less than the yield to maturity.
d. market price greater than its par value.

Answer 1

The correct answer is c. stated yield less than the yield to maturity. When a bond is selling at a discount, its stated yield, which is the interest payment divided by the bond's face value, will be lower than its yield to maturity.

Step-by-step explanation:

The correct answer is c. stated yield less than the yield to maturity. When a bond is selling at a discount, its stated yield, which is the interest payment divided by the bond's face value, will be lower than its yield to maturity. Yield to maturity takes into account the bond's current price, coupon rate, and time to maturity. In the given scenario, the bond's current yield is higher than its stated yield, but lower than its yield to maturity.