Which of the following statements is CORRECT?
A) the market value of a bond will always approach its par value as its maturity date approaches. this holds true even if the firm has filed for bankruptcy.
B) rising inflation makes the actual yield to maturity on a bond greater than a quoted yield to maturity that is based on market prices.
C) the yield to maturity on a coupon bond that sells at its par value consists entirely of a current interest yield; it has a zero expected capital gains yield.
D) on an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.
E) the yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains yield; it has a zero current interest yield.

Question

Quizplus · Accepted Answer

When a coupon bond sells at par value, the yield to maturity consists only of the current interest yield, because the bond's coupon rate is equal to the yield to maturity. There is no capital gain or loss expected because the bond will be redeemed at par value.

Which of the Following Statements Is CORRECT