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Question:

Consider the following statements:

Statement 1: The accrued interest on a bond does not depend on the yield to maturity.

Statement 2: The interest yield on a bond is computed by dividing the annual cash coupon payment by the full price.

Which of the following is most likely?

A
Only Statement 2 is incorrect.

Explaination

The accrued interest on a bond is the same regardless of the yield to maturity. The accrued interest calculation does not consider the time value of money.

The interest yield (also known as the current yield) on a bond is computed by dividing the annual cash coupon payment by the flat price.

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