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What relationship exists between the investor’s required rate of return and the bond’s coupon rate that...

What relationship exists between the investor’s required rate of return and the bond’s coupon rate that will cause a bond to sell at a premium price?

Why would an investor pay a premium price for a bond in the secondary market when the bond is only worth $1,000 when it matures?
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Answer #1

A bond that is trading above its par value in the secondary market is a premium bond. A bond will trade at a premium when it offers a coupon (interest) rate that is higher than investor's required rate of return.This is because investors want a higher yield and will pay for it.

A person would buy a bond at a premium (pay more than its maturity value) because the bond's stated interest rate (and therefore its interest payments) are greater than those expected by the current bond market.

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