An investor is considering buying one of two 10-year,$1,000 face value bonds: Bond A has a 7% annual coupon,while Bond B has a 9% annual coupon.Both bonds have a yield to maturity of 8%,which is expected to remain constant for the next 10 years.Which statement regarding these bonds is correct?

Question

Quizplus · Accepted Answer

Bond A, with a 7% annual coupon, has a lower coupon rate than its yield to maturity of 8%, indicating it is selling at a discount. As it approaches maturity, its price will converge towards its face value, implying an increase in price over time.

An Investor Is Considering Buying One of Two 10-Year,$1,000 Face