Which of the following statements is most FALSE a Two bonds that have 12 years left to maturity can have different prices, even if they each have the same credit risk b If the going rate is 11 , an existing 7 coupon bond trades at a discount However, its price must be equal to its par value at maturity c If the going rate is 5 , an existing 8 coupon bond trades at a premium but at maturity, it must be worth par because that is the amount the company will pay its bondholders Therefore, its price must rise over time d The price of a 15 coupon bond trading at par will remain at $1,000 if the market interest rate remains at 15 Therefore, its current yield will be 15 , and its capital gains yield will be 0 each year e If a bond has a sinking fund provision and interest rates have significantly risen above the coupon rate, the firm will most likely buy the necessary bonds on the open market to satisfy the provision

Question

Which of the following statements is most FALSE  a  Two bonds that have 12 years left to maturity can have different prices, even if they each have the same credit risk  b  If the going rate is 11 , an existing 7  coupon bond trades at a discount  However, its price must be equal to its par value at maturity  c  If the going rate is 5 , an existing 8  coupon bond trades at a premium  but at maturity, it must be worth par because that is the amount the company will pay its bondholders  Therefore, its price must rise over time  d  The price of a 15  coupon bond trading at par will remain at $1,000 if the market interest rate remains at 15   Therefore, its current yield will be 15 , and its capital gains yield will be 0  each year  e  If a bond has a sinking fund provision and interest rates have significantly risen above the coupon rate, the firm will most likely buy the necessary bonds on the open market to satisfy the provision

Accepted Answer

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	a.	Two bonds that have 12 years left to maturity can have different prices, even if they each have the same credit risk.
	b.	If the going rate is 11%, an existing 7% coupon bond trades at a discount. However, its price must be equal to its par value at maturity.
	c.	If the going rate is 5%, an existing 8% coupon bond trades at a premium; but at maturity, it must be worth par because that is the amount the company will pay its bondholders. Therefore, its price must rise over time.
	d.	The price of a 15% coupon bond trading at par will remain at $1,000 if the market interest rate remains at 15%. Therefore, its current yield will be 15%, and its capital gains yield will be 0% each year.
	e.	If a bond has a sinking fund provision and interest rates have significantly risen above the coupon rate, the firm will most likely buy the necessary bonds on the open market to satisfy the provision.

Question

Which of the following statements is most FALSE? a. Two bonds that have 12 years left to maturity can have different prices, even if they

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