Question

Which of the following statements is CORRECT?

a. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero-coupon bond.
b. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.
c. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium.
d. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.
e. If a coupon bond is selling at par, its current yield equals its yield to maturity.

Answer 1

The answer is E.

Step-by-step explanation:

The correct answer from all the options is E. If a coupon bond is selling at par, its current yield equals its yield to maturity because the coupon rate is the same as discount rate.

For option D. If a coupon bond is selling at a discount, it is selling at interest rate lower than the prevailing market rate.

It is also not correct for option C because the coupon rate or interest rate is higher than the prevailing market rate.