Series 7 practice questionmediumAnalysis and Valuation 498
A bond selling at a premium to par will generally have a current yield that is:
- Ahigher than its coupon rate
- Bequal to its yield to maturity in all cases
- Cunrelated to its market price
- Dlower than its coupon rate✓ Correct answer
Explanation
Why D — lower than its coupon rate
Current yield equals annual interest divided by market price. When a bond sells above par, the denominator is higher than par, so current yield is lower than the coupon rate.
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