Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?
A) The bond's current yield exceeds its yield to maturity.
B) The bond's yield to maturity is greater than its coupon rate.
C) The bond's current yield is equal to its coupon rate.
D) If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.
E) The bond's coupon rate exceeds its current yield.

Question

Quizplus · Accepted Answer

When a bond sells at a discount (below its face value), it means that its yield to maturity is greater than its coupon rate. Therefore, option B is correct. Option A is incorrect because if the bond sells at a discount, its current yield will always be less than its yield to maturity. Option C is incorrect because the coupon rate is fixed and does not change with market conditions. Option D is uncertain because the price of the bond will depend on changes in market interest rates. Option E is incorrect because if the bond sells at a discount, its coupon rate will always be greater than its current yield.