Which of the following $5,000 face-value securities has the highest yield to maturity?
A) A 6 percent coupon bond selling for $5,000
B) A 6 percent coupon bond selling for $5,500
C) A 10 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500

Question

Quizplus · Accepted Answer

To calculate yield to maturity, we need to take into account the bond's annual interest payments, its current market price, its face value, and the number of years remaining until maturity.

Using a financial calculator or spreadsheet, we can find that:

- Bond A has a yield to maturity of 6% (same as the coupon rate), since it is selling at par value.
- Bond B has a yield to maturity of 4.06%, since its price is above par value (selling at a premium), which reduces the overall yield.
- Bond C has a yield to maturity of 10%, same as the coupon rate, since it is selling at par value.
- Bond D has a yield to maturity of 14.74%, since its price is below par value (selling at a discount), which increases the overall yield.

Therefore, Bond D has the highest yield to maturity among the given options.

Which of the Following $5,000 Face-Value Securities Has the Highest