Question

if a bond with a $1,000 par value, 20 years to maturity, and a coupon interest rate of 10% was selling for $1100, then the yield to maturity on that bond is: A. is less than 10% B. is greater than 10% C. is 10% D. cannot be determined g

Answer 1

a

Step-by-step explanation:

the yield to maturity of a bond is the total return on a bond if the bond is held to maturity. it is the equivalent of the internal rate of return.

If the yield to maturity is greater than the bonds coupon rate the bond is selling at a discount

If the yield to maturity is less than the bonds coupon rate the bond is selling at a premium

If a bond’s coupon rate is equal to its yield to maturity, then the bond is selling at par.

the bond is selling at a premium as 1100 is greater than 1000. Thus, the ytm is less than 10%