Question

In: Finance

T/F If the Yield to Maturity > than the coupon, the price is less than par.

T/F If the Yield to Maturity > than the coupon, the price is less than par.

Solutions

Expert Solution

When yield to marturity is greater than coupon rate then bonds are sold for discount. Given statement is:

True

An illustration:

Particulars Cash flow Discount factor Discounted cash flow
present value Interest payments-Annuity (10%,5 periods) $                         80.00 3.79079 $                303.26
Present value of bond face amount -Present value (10%,5 periods) $                    1,000.00 0.62092 $                620.92
Bond price $                924.18
Face value $             1,000.00
Premium/(Discount) $                 (75.82)

please rate.


Related Solutions

If the yield of maturity of the bond is lower than the coupon rate, the price...
If the yield of maturity of the bond is lower than the coupon rate, the price of this bond will be? Select one: a. Higher than the par value. b. Lower than the par value. c. Equal the par value. The situation in which the current market price is greater than intrinsic value is called: Select one: a. All answers are incorrect. b. Equilibrium. c. Stock undervalued. d. Stock overvalued. An investor is considering purchasing a 10-year zero-coupon bond of...
Par Value Coupon Rate Years to Maturity Yield to Maturity Price Coupon Frequency $5,000.00 ? 5...
Par Value Coupon Rate Years to Maturity Yield to Maturity Price Coupon Frequency $5,000.00 ? 5 10% $4,620.92 annual $1,000.00 ? 15 5% $1,000.00 semiannual $1,000.00 ? 5 11% $923.34 monthly $1,000.00 ? 20 12% $924.50 quarterly Make sure to round all intermediate calculations to at least six decimal places.
Par Value Coupon Rate Years to Maturity Yield to Maturity Price $5,000.00 6% 5 12% ?...
Par Value Coupon Rate Years to Maturity Yield to Maturity Price $5,000.00 6% 5 12% ? $5,000.00 11% 15 8% ? $1,000.00 10% 10 6% ? $1,000.00 8% 5 5% ? Find the price for the bond in the following​ table:  ​(Round to the nearest​ cent.)
Par Value Coupon Rate Years to Maturity Yield to Maturity Price $1,000.00 5% 15 10% ?...
Par Value Coupon Rate Years to Maturity Yield to Maturity Price $1,000.00 5% 15 10% ? $1,000.00 12% 30 11% ? $5,000.00 7% 5 12% ? $1,000.00 10% 30 8% ? Find the price for the bond in the following​ table:  ​(Round to the nearest​ cent.)
The yield to maturity: equals both the current yield and the coupon rate for par value...
The yield to maturity: equals both the current yield and the coupon rate for par value bonds. will exceed the coupon rate when the bond is selling at a premium. equals the current yield for all annual coupon bonds. can only be realized if a bond is purchased on the issue date at par value. that is expected will be realized any time a bond is sold.
Find the current yield of the most recent T-bill issue (any maturity less than 1-year; provide...
Find the current yield of the most recent T-bill issue (any maturity less than 1-year; provide the source of this information). Assume that the annualized interest rate is expected to increase by 2 percent (for the matching period) and you are interested in purchasing a newly-issued T-bill. Based on this information, how much should you pay for the new T-bill issue?
Duration of a coupon paying bond is: equal to its maturity. less than a zero coupon...
Duration of a coupon paying bond is: equal to its maturity. less than a zero coupon bond. equal to its number of payments. None of these. equal to the zero coupon bond.
explain the relationship between the coupon rate, the yield to maturity, and the price of a...
explain the relationship between the coupon rate, the yield to maturity, and the price of a bond. Identify risks faced by bond investors.
Find the yield to maturity of a par $10,000 bond selling at $9,800 with semiannual coupon...
Find the yield to maturity of a par $10,000 bond selling at $9,800 with semiannual coupon payments equal to $280 and maturing in 8years. State the formula and substitute the figures in to the formula to derive the correct answer if possible?
A $1,000 par bond with a 12.25% coupon has 10 years to maturity. If the yield...
A $1,000 par bond with a 12.25% coupon has 10 years to maturity. If the yield to maturity is 12.25%, what is the price of the bond? $1,138.25 $1,047.92 $1,000.00 $889.20
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT