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18 February, 01:26

What is the current yield of the 4.75% 2041 maturity bond? What is its yield to maturity? b. ""The current yield is less than the yield to maturity whenever the bond price is greater than the face value."" True or false?

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  1. 18 February, 01:40
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    False

    Explanation:

    The current yield of 4.75% given in the question is the annual coupon interest payable by the bond while the yield to maturity is the discount rate used in discounting the cash flows (coupon interest and principal repayment) back to present terms.

    The is an inverse relationship between yield to maturity and bond price, when the yield to maturity is higher than current yield the bond price would lower than face value.

    In the same vein, when the yield to maturity is lower than current yield the bond records a premium (a price higher than face value)
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