Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%?
A)the face value of the bond has decreased.
B)the bond's maturity value exceeds the bond's price.
C)the bond's internal rate of return is 7%.
D)the bond's maturity value is lower than the bond's price.

Question

Quizplus · Accepted Answer

A bond's current yield is calculated by dividing the annual coupon payment by the bond's current price. In this case, the bond's current yield of 7% is lower than its coupon rate of 10%, which means the bond is selling at a premium. Therefore, the bond's price is higher than its face value (maturity value), leading to the answer of D. The bond's internal rate of return is not necessarily 7%.

Which of the Following Statements Is Correct for a 10