Question 4

Company ABC just issued a corporate bond with annual coupon rate of 7.25% and 20 years to maturity. ABC makes coupon payment twice a year. The bond has a yield to maturity of 5.25%. Which of the following statements is correct?

A. Periodic coupon payment is determined by the product of stated annual coupon rate and the market price of the bond today,

B. The bond is currently selling at a price below its par value.

C. If market interest rate remains unchanged, the price of the bond next year must be lower than it is today.

D. When the market interest rate increase, the market price of the bond raises accordingly.