Assume that a corporation issues a 5% Aaa/AAA rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are TRUE?
The current yield on the debenture will be higher than 5%.
The current yield on the debenture will be lower than 5%.
The dollar price per bond will be higher than par.
The dollar price per bond will be lower than par.
A) II and III.
B) II and IV.
C) I and IV.
D) I and III.
Answer: C) I and IV.