Stephanie Purchased a Corporate Bond That Matures in Three Years

Stephanie purchased a corporate bond that matures in three years. The bond has a coupon interest rate of 9 percent and its yield to maturity is 6 percent. If market interest rates remain constant and Stephanie sells the bond in 12 months, her capital gain from holding the bond will be:

A) positive because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity.
B) negative because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity.
C) positive because she purchased the bond at a premium and the bond price will approach its market price as it nears its maturity.
D) negative because she purchased the bond at a premium and the bond price will approach its face value as it nears its maturity.
E) positive because she purchased the bond at a discount and the bond price will approach its market price as it nears its maturity.

Correct Answer:

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