If the Current Price of a Bond Is Equal to Its

question 68

Multiple Choice

If the current price of a bond is equal to its face value,

• A)there is no capital gain or loss from holding the bond until maturity.
• B)the yield to maturity must be greater than the current yield.
• C)the current yield must be greater than the coupon rate.
• D)the coupon rate must be greater than the yield to maturity.

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Definitions:

Purchasing-power Parity

A theory in economics that states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another without adjusting for inflation.

Prices

The amount of money required to purchase a good or service.

Arbitrage

The simultaneous purchase and sale of the same asset in different markets to profit from tiny differences in the asset's listed price.