Question

If a bond is selling at a premium, Group of answer choices the bond is clearly...

If a bond is selling at a premium,

Group of answer choices

the bond is clearly a good investment.

the bond is overpriced and would not represent a good investment.

the bond’s coupon rate is greater than the market’s required rate of return.

Two of these are correct.

the bond’s market value is less than its face value.

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Homework Answers

Answer #1

The correct answer is bond coupon rate is greater than the market rate of return

Explanation: The bond value is the present value of all the cash flows that the bond is going to generate over the years till maturity. The discount rate we used is the market rate of return, if the market rate of return is less than he coupon rate, then the present value will be more than the face value reason is less discounting, thus it will sell at premium.

We can't tell whether it will be good investment or not as we will also need to evaluate the risk associated with the bond.

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