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A 12-year bond has an annual coupon of 7%. The coupon rate will remain
fixed until the bond matures. The bond currently has a yield to maturity
of 9%. Which of the following statements is CORRECT? (Hint: find the
bond price based on the current yield to maturity of 9%)
If market
interest rates decline, the price of the bond will also decline.
bond should currently be selling at its par value (par bond).
market interest rates remain unchanged, the bond’s price will decrease
over time until it reaches $1000.
The bond is currently selling at a
price above its par value (premium bond). O
If market interest rates
remain unchanged the bond’s price will increase over time until it
reaches $1000.


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