Question

A 12-year bond has an annual coupon rate of 9%. The par value of the bond is $1,000 and the bond has a yield to maturity of 7%. Which of the following statements is correct?options:>If the market interest rate declines, the price of the bond will also decline.>The bond is currently selling at a price below its par value.>The bond is currently selling at a price above its par value.>The bond is currently selling at its par value.

Answer 1

The bond is currently selling at a price above its par value. When the bond's yield to maturity is less than the bond's coupon rate, the bond is sold at a premium above its par value. So, since the yield to maturity of this bond is 7%, which is less than the annual coupon rate of 9%, the bond will be sold at a premium above its par value. Therefore, the correct statement is: The bond is currently selling at a price above its par value.

Step-by-step explanation: