Question

A corporation has issued 7% AA rated sinking fund debentures at par. Three years later, similar issues are being offered in the primary market at 8%. Which are TRUE statements about the outstanding 7% issue?

I The current yield will be higher than the nominal yield
II The current yield will be lower than the nominal yield
III The dollar price of the bond will be at a premium to par
IV The dollar price of the bond will be at a discount to par

A. I and III
B. I and IV
C. II and III
D. II and IV

Answer 1

Answer: Option B : l and lV

Step-by-step explanation:

I : The current yield of 8% is greater than the nominal 7% yield.

lV : Also the dollar price of the bond will be at a discount to par.