Question

When a bond's price is greater than its par value, we say the bond is selling ____________.

This occurs when YTM is ___________ the coupon rate.

Group of answer choices

at a premium; less than

at a discount; less than

at a discount; greater than

at a premium; greater than

Answer 1

Answer-at a premium; less than

Price of bond=Present value of coupon payments+Present value of face value

Price of bond=Coupon payment*((1-(1/(1+r)^n))/r)+Face value/(1+r)^n

Coupon payment=coupon rate*face value

n=number of periods to maturity

r-YTM

As it can be seen from the formula that if the r(YTM ) is less than coupon rate,the price of bond will be greater than par value and when the price of bond > par value it is said to be selling at a premium

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