Last year Malko Enterprises issued 6-year bonds at par with annual coupon rate o

Question

Last year Malko Enterprises issued 6-year bonds at par with annual coupon rate of 7.5%, payable semi-annually. These bonds currently sell for $1,050. Which of the following statements is incorrect?

Select one:

a. The market interest rate must fall over the year.

b. An investor who purchased the bonds last year and sells them today has a holding period return greater than 7.5%.

c. The yield to maturity of Malko's bonds when issued last year was 7.5%.

d. An investor who purchases some Malko's bonds today should have a yield to maturity greater than 7.5%.

Explanation / Answer

Answer D: The Investor who purchases Malko's bond today should have a YTM less than 7.5% because the bond is seling at a premium and would thus yeild a YTM of less than coupon rate.

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