Asked by Rainn Cline on Jul 15, 2024
Verified
A 10-year corporate bond has an annual coupon of 9%.The bond is currently selling at par ($1,000) .Which of the following statements is NOT correct?
A) The bond's expected capital gains yield is positive.
B) The bond's yield to maturity is 9%.
C) The bond's current yield is 9%.
D) The bond's current yield exceeds its capital gains yield.
Capital Gains Yield
Results from changing prices and is calculated as (P1 - P0)/P0, where P0 is the beginning-of-period price and P1 is the end-of-period price.
Yield To Maturity
The total return anticipated on a bond if it is held until the end of its lifetime.
Current Yield
Current yield is a financial term used to describe the annual income (interest or dividends) earned from an investment, expressed as a percentage of the current price of the security.
- Understand the determinants that impact the yield to maturity and anticipated returns on bonds.
- Gain an understanding of yield to maturity and its relevance to those investing in bonds.
Verified Answer
VN
Vikash NayakJul 17, 2024
Final Answer :
A
Explanation :
The bond's expected capital gains yield is zero, not positive, when it is selling at par because its price is not expected to change.
Learning Objectives
- Understand the determinants that impact the yield to maturity and anticipated returns on bonds.
- Gain an understanding of yield to maturity and its relevance to those investing in bonds.