Asked by Fahim Sultanzada on Apr 27, 2024
Verified
Which of the following statements regarding bond current yields is NOT true?
A) If a bond is selling at a discount to par, then its current yield will be less than its yield to maturity.
B) If a bond is selling at its par value, then its current yield equals its yield to maturity.
C) If a bond is selling at a premium, then its current yield will be greater than its yield to maturity.
D) A bond's current yield will remain unchanged as the bond's term to maturity changes.
Current Yields
The annual income (interest or dividends) from an investment divided by the current price of the security, expressed as a percentage.
Par Value
The nominal or face value of a bond, share of stock, or other financial instruments, as stated by the issuing company.
Yield To Maturity
The total return anticipated on a bond if the bond is held until the date of its maturity, considering all payments from the time of purchase to maturity.
- Dissect how shifts in market interest rates impact bond yields and cost values.
Verified Answer
RJ
Ramzie JonesApr 29, 2024
Final Answer :
D
Explanation :
The current yield of a bond changes as its price changes. Therefore, a bond's current yield will not remain unchanged as its term to maturity changes. The other options are true. If a bond is selling at a discount, its current yield will be less than its yield to maturity, and if a bond is selling at a premium, its current yield will be greater than its yield to maturity. If a bond is selling at par, its current yield equals its yield to maturity.
Learning Objectives
- Dissect how shifts in market interest rates impact bond yields and cost values.