Which of the following statements is most correct?
A) The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B.
B) If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity.
C) If a coupon bond is selling at par, its current yield equals its yield to maturity.
D) Both a and b are correct.
E) Both b and c are correct.

Question

Quizplus · Accepted Answer

If a coupon bond is selling at par, it means that the price is equal to the face value, so the current yield (annual coupon payment divided by price) will equal the yield to maturity (the rate of return that an investor will receive if they hold the bond until maturity and receive all the interest payments and the face value). Therefore, statement C is correct. The other statements are not necessarily true. The current yield on a bond can be influenced by factors such as changes in interest rates and credit risk, and does not necessarily indicate the yield to maturity. Additionally, whether the yield to call or yield to maturity is a better measure of return depends on the specific situation and the investor's objectives.

Which of the Following Statements Is Most Correct