Which of the following statements is CORRECT?
A) A zero coupon bond's current yield is equal to its yield to maturity.
B) If a bond's yield to maturity exceeds its coupon rate,the bond will sell at par.
C) All else equal,if a bond's yield to maturity increases,its price will fall.
D) If a bond's yield to maturity exceeds its coupon rate,the bond will sell at a premium over par.
E) All else equal,if a bond's yield to maturity increases,its current yield will fall.

Question

Quizplus · Accepted Answer

As the yield to maturity represents the total return of a bond, if it increases, the price of the bond must fall to maintain the same level of return for the investor. Therefore, all else being equal, there is an inverse relationship between a bond's yield to maturity and its price. Option A is incorrect because a zero coupon bond does not have a current yield as it does not pay interest. Option B is incorrect because a bond selling at par means its yield to maturity equals its coupon rate, not the other way around. Option D is incorrect because if a bond's yield to maturity exceeds its coupon rate, the bond will actually sell at a discount, not a premium over par. Option E is incorrect because the current yield of a bond is calculated based on its annual coupon payment as a percentage of its price, and does not depend on changes in the bond's yield to maturity.

Which of the Following Statements Is CORRECT