Lambda Co.has bonds outstanding that mature in 10 years.The bonds have $1,000 face value,pay interest annually at a rate of 9%,and have a current selling price of $1,125.The yield to maturity on the bonds is less than 9%.

Question

Quizplus · Accepted Answer

The fact that the bonds are selling at a price above their face value ($1,125 > $1,000) indicates that the market interest rate is lower than the coupon rate of 9%. This means that the yield to maturity (which takes into account the present value of all future cash flows, including the annual interest payments and the final face value payment at maturity) is lower than 9%. Therefore, the statement is true.

Lambda CoHas Bonds Outstanding That Mature in 10 Years