Which of the following statements is most correct?
A) The current yield on Bond A exceeds the current yield on Bond B;therefore,Bond A must have a higher yield to maturity than Bond B.
B) If a bond is selling at a discount,the current yield is a better measure of return than the yield to maturity.
C) If a coupon bond is selling at par,its current yield equals its yield to maturity.
D) Both a and b are correct.
E) Both b and c are correct.

Question

Quizplus · Accepted Answer

Statement A is incorrect because current yield only reflects the annual interest payment as a percentage of the bond's current market price, while yield to maturity reflects the total return an investor would receive if the bond is held until maturity. Therefore, a higher current yield does not necessarily mean a higher yield to maturity.
Statement B is incorrect because yield to maturity is a better measure of return than current yield since it takes into account the difference between the bond's purchase price and its face value at maturity. Current yield only reflects the annual interest payment as a percentage of the bond's current market price.
Statement C is correct because when a coupon bond is selling at par, its current yield equals the annual coupon payment divided by the bond's par value, which is also the same as its yield to maturity.

Which of the Following Statements Is Most Correct