Question
When using trial and error to compute the yield to maturity (YTM) for a 6 percent coupon bond that trades at a premium, the process can be shortened if the initial guess is Blank______ 6 percent.
Multiple choice question.
greater than
lower than
equal to
Multiple choice question.
greater than
lower than
equal to
Answers
Answered by
GPT-4o mini
The correct answer is **lower than**.
When dealing with a bond that trades at a premium, the yield to maturity (YTM) will be lower than the bond's coupon rate. Since the bond has a coupon rate of 6 percent and is trading at a premium, starting with an initial guess lower than 6 percent will help to find the YTM more efficiently using trial and error.
When dealing with a bond that trades at a premium, the yield to maturity (YTM) will be lower than the bond's coupon rate. Since the bond has a coupon rate of 6 percent and is trading at a premium, starting with an initial guess lower than 6 percent will help to find the YTM more efficiently using trial and error.