If a bond is purchased at a price above the face value,the yield to maturity is:
A)greater than the stated interest rate.
B)the same as the stated interest rate.
C)less than the stated interest rate.
D)zero.
E)of no significance.

Question

Quizplus · Accepted Answer

Yield to maturity is the total return anticipated on a bond if the bond is held until it matures. If the bond is purchased above the face value, it means that the investor paid more than the par value. As a result, the yield to maturity will be lower than the stated interest rate because the investor will receive less interest income over the life of the bond. Therefore, the correct choice is C.

If a Bond Is Purchased at a Price Above the Face