Which of the following is true for a coupon bond?
A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B) The price of a coupon bond and the yield to maturity are positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D) The yield is less than the coupon rate when the bond price is below the par value.

Question

Quizplus · Accepted Answer

When a coupon bond is priced at its face value, it means the bond is priced exactly at its par value. In this scenario, the coupon payments and the face value payment at maturity fully compensate the investor for the invested amount. Therefore, the yield to maturity of such a bond would be equal to the coupon rate. Option A is the only true statement among the options given. Option B is incorrect because the price of a bond and its yield to maturity are inversely related. Option C and D are also incorrect because the yield to maturity is always equal to, less than or equal to the coupon rate depending on whether the bond is priced at, below or above par value respectively.

Which of the Following Is True for a Coupon Bond