Which of the following statements is CORRECT?
A) If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.
B) If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond.
C) If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium.
D) If a coupon bond is selling at a premium, its current yield equals its yield to maturity.
E) If a coupon bond is selling at par, its current yield equals its yield to maturity.

Question

Quizplus · Accepted Answer

When a coupon bond is selling at par, it means that the coupon rate is equal to the prevailing interest rate, and therefore, the yield to maturity is equal to the coupon rate. This means that the current yield, which is the annual interest payment divided by the bond's price, is also equal to the yield to maturity.

Which of the Following Statements Is CORRECT