Which of the following are true for a coupon bond?
A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B) The price of a coupon bond and the yield to maturity are positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D) All of the above are true.
E) Only A and B of the above are true.

Question

Quizplus · Accepted Answer

When a coupon bond is priced at its face value, the yield to maturity indeed equals the coupon rate. This is because the yield to maturity is the interest rate that equates the present value of the bond's future cash flows (coupons and face value) to its current price. When the bond is priced at par, the coupon rate directly reflects the yield to maturity. Choices B and C are incorrect because the price of a coupon bond and the yield to maturity are inversely related, and the yield to maturity is greater than the coupon rate when the bond price is below the par value, not above.

Which of the Following Are True for a Coupon Bond