Question

7. An annual-pay, 4% coupon, 10-year bond has a yield to maturity of 5.2%. If the price of this bond is unchanged two years later, its yield to maturity at that time is: * A. 5.2%. B. less than 5.2%. C. greater than 5.2%. D. Cannot be determined. O E. None of the above.

Answer 1

This bond is a discount bond because the coupon rate is less than the yield. As it moves closer to maturity, the price moves closer to the face value and hence it increases. Now, since the price has remained same, it means that the yield to maturity has also increased to keep the price same as before i.e. reduced as before. Hence, option C is correct.