SIE practice questionhardYield to maturity
A 20-year, 7% coupon bond is purchased at 85. Which of the following is TRUE?
- ACurrent yield is less than the coupon rate
- BThe yield to maturity is the same as the coupon rate
- CThe yield to maturity is lower than the coupon rate
- DThe yield to maturity is higher than the coupon rate✓ Correct answer
Explanation
Why D — The yield to maturity is higher than the coupon rate
Buying below par boosts yield to maturity above the coupon rate. Current yield is higher than the coupon, not lower.
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