Question

A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of

A) 8 percent.
B) 10 percent.
C) 12 percent.
D) 14 percent.

Answer 1

A) 8 percent.

Step-by-step explanation:

Coupon rate refers to the expected periodic earnings of a bond until its maturity. The coupon rate is expressed as a percentage of the par value or the face value of the bond. It is similar to the interest rate for other investments option. A bond's coupon rate is, therefore, its interest rate.

A bond coupon rate represents its yearly earnings. However, most bonds will pay the interest twice per year. The bond issuer pays the bondholder regular and fixed interest until the bond matures. The coupon rate determines the bond's profitability. A bond with a higher coupon rate is more attractive to investors.