Question

A bond has a par value of $1,000, has 30 years to maturity, and makes annual coupon payments of $50. Which of the following statements is NOT true?

Group of answer choices

At a market interest rate of 5%, the bond sells for par.

If the bond’s market interest rate is 6%, the bond sells at a discount.

If the bond’s market interest rate is 5%, and if this bond paid semiannual coupons, the price would be higher holding everything else constant.

If the bond sells at par, the coupon rate and the yield-to-maturity are equal to each other.

Answer 1

Answer: If the bond’s market interest rate is 5%, and if this bond paid semiannual coupons, the price would be higher holding everything else constant.

Based on the bond price relation,

Coupon rate of the bond in question = $50/$1000 = 5%

Now, if the bond is semi-annual coupon payment making, and bond's market interest rate is 5%, effective yield would be higher than 5% (and hence coupon rate), and the price of bond would then be lower than the par value.