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6. Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10...

6. Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10 percent currently have a yield to maturity (YTM) equal to 8 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at a premium in the financial markets.

TRUE OR FALSE???

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Answer #1

Bonds issued by BB&C Communications that have a coupon rate of interest equal to 10 percent currently have a yield to maturity (YTM) equal to 8 percent. Based on this information, it is understood that BB&C's bonds must currently be selling at a premium in the financial markets - TRUE

Explanation

Coupon rate = 10%

YTM = 8%

Coupon rate > YTM implies that the bond will be selling at a premium

For example, Let's consider a bond with a face value of $1,000 and it is maturing in 1 year. It pays annual coupon at 10% and the YTM is 8%

Value of the bond = 1100/(1.08) = 1018.5185

Since the value of the bond is greater than its face value - the bond must be currently selling at a premium

So, the above statement is True

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