Question

A bond with 20 years left to maturity currently sells for 95% of par value. If the bond makes a $50 annual coupon payment, then the bond must have a YTM greater than what percentage rate?

Answer 1

The bond currently sells for 95% of its par value which implies that the bond is selling at a discount.

Bond selling at a discount have higher discount rates than coupon rates which is captured by the Yield to Maturity (YTM).

Assuming Face value = $1000

Coupon rate = Coupon / Face value

Coupon rate = $50 / $1000

Coupon rate = 5%

Thus the for a bond having $50 in annual coupon payments & $1000 as Face value the YTM should greater than 5% to sell at 95% of par value.