Question

Which of the following statements is INCORRECT. All else equal, 1. If a bond's yield-to-maturity (YTM, i.e., market interest rate) is greater than its coupon rate, then the bond is trading at a premium. 2. Duration measures the sensitivity of a bond's price to changes in interest rate. 3. If a bond's market value is equal to its par amount, then its YTM will be equal to its coupon rate. 4. The estimated market price of a bond is the sum of its future discounted cash flows.

Answer 1

1

Step-by-step explanation:

When the yield to maturity is greater than the coupon rate, the bond is selling at a discount.

When the yield to maturity is less than the coupon rate, the bond is selling at a premium.

When the yield to maturity is equal to the coupon rate, the bond is selling at par.