Products & RisksQuestion 5 of 125
A corporate bond with a 6% coupon is currently trading at a price of 95 (a discount). Compared with the coupon rate, the bond's current yield and yield to maturity will be:
a.Both lower than the coupon
b.Current yield lower, yield to maturity higher
c.Both equal to the coupon
d.Both higher than the coupon
Explanation
When a bond trades at a discount, its current yield and yield to maturity both exceed the coupon rate, and the yield to maturity is the highest of the three measures because it also captures the gain from par redemption. The ordering at a discount is coupon < current yield < YTM.
Practice all 125 questions free — no signup required.
Related questions on this topic
- An investor owns 100 shares of a company that declares a 2-for-1 forward stock split. After the split, the investor will own:
- Cumulative preferred stock differs from straight (noncumulative) preferred stock in that cumulative preferred:
- An American Depositary Receipt (ADR) is best described as:
- An investor buys a $1,000 par bond with a 5% coupon at a price of 80. What is the current yield?
- Which statement about the relationship between bond prices and interest rates is correct?
- Interest paid on general obligation municipal bonds to a resident investor is generally:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 7 General Securities Representative Exam · How we review