A bond with a face value of $1,000 has annual coupon payments of $100 and was issued seven years ago. The bond currently sells for $1,085, has eight years left to maturity. This bond's ________ must be less than 10%.

Question

Quizplus · Accepted Answer

The bond's yield to maturity (YTM) must be less than 10% because it is selling at a premium (above its face value), indicating that its YTM is lower than its coupon rate. The current yield, calculated as the annual coupon payment divided by the current price, also reflects a return less than 10% because the price of the bond is above its face value.

A Bond with a Face Value of $1,000 Has Annual