$$ 1 \leftarrow \begin{array}{l} ext { Quality Construction Products Inc. issued } \$ 1,000 ext { face value } 20 ext { - year bonds five years ago. These } \ ext { bonds are currently selling for } \$ 1,218.47 ext {. From this information we can conclude that the Quality } \ ext { Construction Products Inc.bonds have a yield - to - maturity greater than the coupon rate on these } \ ext { bonds. } \ ext { False }\end{array} $$

Question

$$ 1 \leftarrow \begin{array}{l}	ext { Quality Construction Products Inc. issued } \$ 1,000 	ext { face value } 20 	ext { - year bonds five years ago. These } \ 	ext { bonds are currently selling for } \$ 1,218.47 	ext {. From this information we can conclude that the Quality } \ 	ext { Construction Products Inc.bonds have a yield - to - maturity greater than the coupon rate on these } \ 	ext { bonds. } \ 	ext { False }\end{array} $$

UpStudy AI · Accepted Answer

To determine whether the statement is true or false, we need to analyze the relationship between the selling price of the bonds, their face value, and the yield-to-maturity (YTM) compared to the coupon rate.

### Known Conditions:
1. **Face Value of Bonds (F)**: \$1,000
2. **Current Selling Price (P)**: \$1,218.47
3. **Time to Maturity (t)**: 20 years - 5 years = 15 years
4. **Coupon Rate**: Not explicitly given, but we can infer it based on the selling price and face value.

### Analysis:
1. **Understanding Bond Pricing**:
   - When bonds are selling for more than their face value (in this case, \$1,218.47 > \$1,000), it typically indicates that the coupon rate is higher than the current market interest rates. This is because investors are willing to pay a premium for the higher interest payments.

2. **Yield-to-Maturity (YTM)**:
   - The YTM is the total return anticipated on a bond if it is held until it matures. It takes into account the bond's current market price, its face value, the coupon payments, and the time remaining until maturity.
   - If the YTM is greater than the coupon rate, the bond would sell at a discount (less than face value). Conversely, if the YTM is less than the coupon rate, the bond would sell at a premium (more than face value).

### Conclusion:
Since the bonds are currently selling for \$1,218.47, which is greater than the face value of \$1,000, we can conclude that the coupon rate must be greater than the yield-to-maturity. Therefore, the statement that "the Quality Construction Products Inc. bonds have a yield-to-maturity greater than the coupon rate on these bonds" is **False**.

Thus, the final answer is:

**False**.
The statement is **False**.

Upstudy AI Solution

Answer

Solution

Extra Insights

Related Questions

Latest Economics Questions