Bond concepts Answer: b Diff: M
36. Which of the following statements is most correct?
a. If a bond is selling for a premium, this implies that the bond’s yield to maturity exceeds its coupon rate.
b. If a coupon bond is selling at par, its current yield equals its yield to maturity.
c. If rates fall after its issue, a zero coupon bond could trade for an amount above its par value.
d. Statements b and c are correct.
e. None of the statements above is correct.
Bond concepts Answer: b Diff: M
37. Which of the following statements is most correct?
a. All else equal, a bond that has a coupon rate of 10 percent will sell at a discount if the required return for a bond of similar risk is
8 percent.
b. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains constant over time.
c. The total return on a bond for a given year consists only of the coupon interest payments received.
d. Statements b and c are correct.
e. All of the statements above are correct.
Bond concepts Answer: e Diff: M
38. Which of the following statements is most correct?
a. When large firms are in financial distress, they are almost always liquidated.
b. Debentures generally have a higher yield to maturity relative to mortgage bonds.
c. If there are two bonds with equal maturity and credit risk, the bond that is callable will have a higher yield to maturity than the bond that is noncallable.
d. Statements a and c are correct.
e. Statements b and c are correct.
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