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Consider a coupon bond with a coupon rate of 10%. The face value amount is unknown. Suppose the bond is trading at a par. What can we say about yield to maturity of the bond? a. YTM = 10%. b. YTM is negative. c. There is not enough information to answer the question. d. YTM < 10%. e. YTM > 10%.

Question

Consider a coupon bond with a coupon rate of 10%. The face value amount is unknown. Suppose the bond is trading at a par. What can we say about yield to maturity of the bond?

a. YTM = 10%.

b. YTM is negative.

c. There is not enough information to answer the question.

d. YTM < 10%.

e. YTM > 10%.

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Solution

The correct answer is a. YTM = 10%. When a bond is trading at par, the yield to maturity is equal to the coupon rate. So, if the coupon rate is 10%, the yield to maturity would also be 10%.

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