Question

            A 10-year bond has a 10 percent annual coupon and a yield to maturity of 12 percent. The bond can be called in 5 years at a call price of $1,050 and the bond’s face value is $1,000. Which of the following statements is most correct? Please explain why.

            a.   The bond’s current yield is greater than 10 percent.

            b.   The bond’s yield to call is less than 12 percent.

            c.   The bond is selling at a price below par.

            d.   Both answers a and c are correct.

5. None of the above answers is correct.

Answer 1

Answer is Option b The bond's Yield To all is less than 12%

Because YTC of the bond is 10.73%

Option a is wrong because current yield of the bond is not greater than 10 it is 9.52%

Option C is wrong because the bond is trading at a price above the par i.e 1050 which is greater than 1000