An 8 percent corporate bond that pays interest semi-annually was issued last year.Which two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent?
I.a structure as an interest-only loan
II.a current yield that equals the coupon rate
III.a yield-to-maturity equal to the coupon rate
IV.a market price that differs from the face value

Question

Quizplus · Accepted Answer

I and IV are correct. Corporate bonds that pay interest semi-annually are structured as interest-only loans, where the principal is repaid at maturity, and if the yield-to-maturity is lower than the coupon rate, the bond's market price is typically higher than its face value.

An 8 Percent Corporate Bond That Pays Interest Semi-Annually Was