Which of the Following Statements Is CORRECT

question 55

Multiple Choice

Which of the following statements is CORRECT?

• A) On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.
• B) On an expected yield basis, the expected current yield will always be positive because an investor would not purchase a bond that is not expected to pay any cash coupon interest.
• C) If a coupon bond is selling at par, its current yield equals its yield to maturity.
• D) The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B.
• E) If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity.

Comprehend the concept of yield to maturity and how to calculate it.

Understand the relationship between interest rates and bond prices.

Recognize the different risks associated with bond investing.

Explain the importance and functions of bond covenants and how they protect bondholders.