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When does the yield to maturity equal coupon rate? Select one: a
When does the yield to maturity equal coupon rate?
Select one:
a. when there is no face value of the bond
b. when the face value is less than the price of the bond
c. none of the above
d. when the face value is more than the price of the bond
e. when the face value equals the price of the bond
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Expert Solution
Option E is correct!!.
Price of bond is equal to coupons and principal payment discounted back to today and if yield to maturity is equal to coupon rate then price of bond must be equal to face value of bond because coupouns will get discounted back by same discount rate as coupon rate thereby making both Face value and price of bond equal.
Other options are incorrect as if face value is more than price of bond then yield to maturity will be more than coupon rate and if face value is less than price of bond then yield to maturity will be less than coupon rate.
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