Which statement regarding bonds is true?

A) If a coupon bond is selling at par, its current yield equals its yield to maturity.
B) If rates fall after its issue, a zero coupon bond could trade at a price above its par value.
C) If rates fall rapidly, a zero coupon bond's expected appreciation could become negative.
D) If a firm moves from a position of strength toward financial distress, its bonds' yield to maturity would probably decline.

If a coupon bond is selling at par, its current yield (annual coupon payment divided by current market price) would be equal to its yield to maturity (discount rate that equates present value of future cash flows to current market price).

Answer: B
A zero coupon bond is issued at a discount to its par value and then redeemed at par value at maturity. If rates fall after its issue, the bond's value would increase and it could trade at a price above its par value.

Answer: C
A zero coupon bond's expected appreciation is negatively impacted if rates rise, but if rates fall too rapidly, there could be a risk of the bond's value declining due to the impact of interest rate risk.

Answer: D
If a firm's creditworthiness deteriorates, the risk premium (represented by the yield to maturity) on its bonds would increase to compensate investors for the increased risk. Therefore, the yield to maturity on its bonds would likely increase rather than decrease.