If a bond's yield-to-maturity is greater than the appropriate yield-to-maturity, the bond
A) could have a positive or negative NPV.
B) will have a positive NPV.
C) will have an intrinsic value less than its market price.
D) will have an intrinsic value equal to its market price.

Question

Quizplus · Accepted Answer

If the bond's yield-to-maturity is greater than the appropriate yield-to-maturity, it means that the bond is priced lower in the market to compensate for the higher yield. Thus, investing in such a bond will result in a positive net present value (NPV) as its cash flows are higher than the initial investment. Therefore, option B is correct. Options A, C, and D do not correctly represent the relationship between yield-to-maturity and NPV.

If a Bond's Yield-To-Maturity Is Greater Than the Appropriate Yield-To-Maturity