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1.Why does a bond sell at premium? 2. why does a bond sell at discount? 3....

1.Why does a bond sell at premium?
2. why does a bond sell at discount?
3. What are two terms for “ interest rate” as it pertains to bonds?
4. What is a bond?
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Answer #1

1) When investors want a higher yield, a bond is traded at premium and the offered coupon rate higher than its prevailing interest rates

2) A bond will trade at a discount the coupon rate offered is lower than prevailing interest rates. It can be due to the differential in interest rate; default risk or reduction in the credit rating

3) The interest rate is referred to as the coupon rate. A coupon rate refers to the sum of annual interest income paid based on the face value of the bond to a bondholder. A bond’s yield to maturity (YTM) refers to the estimated rate of return on the basis of the assumption that bond is held until maturity date and not called.

4) A bond that is trading above its par value in the secondary market is a premium bond; bond currently trading for less than its par value in the secondary market is a discount bond.

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