You own a bond that has a 6 percent annual coupon and matures 5 years from now.

Question

You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Answer

The current yield-to-maturity is greater than 6 percent.

The current yield is 6 percent.

The next interest payment will be $30.

The bond is currently valued at one-half of its issue price.

You will realize a capital gain on the bond if you sell it today.

Explanation / Answer

You will realize a capital gain on the bond if you sell it today.

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