Which of the following statements best describes bonds?

Question

Quizplus · Accepted Answer

A coupon bond's current yield equals its annual interest payment divided by its current market price. If the bond is selling at par, then its current market price equals its face value, and therefore, its current yield would be equal to its coupon rate. On the other hand, a bond's yield to maturity reflects the total return an investor would earn if they hold the bond until maturity, assuming all interest payments are reinvested at the same rate. Therefore, if a bond is selling at par, and its coupon rate is equal to its yield to maturity, then its current yield would also be equal to its yield to maturity.

B) If rates fall after its issue, a zero coupon bond's price could increase, but it would never trade above its par value.

C) A zero coupon bond's expected appreciation would become negative only if interest rates increase rapidly, which would cause the bond price to decrease.

D) If a firm moves from a position of strength toward financial distress, its bonds' yield to maturity would increase, not decline. This is because investors would demand a higher return for taking on the higher risk associated with the firm's potential default.

Which of the Following Statements Best Describes Bonds