Question

A Bond that has a $1,000 par value with several years until maturity and a 9% coupon rate with annual payments recently sold for $980. The yield to maturity

		is 9%
		cannot be determined
		is greater than 9%
		is less than 9%

Answer 1

Bond whose coupon rate is equal to the YTM, trades at par value.

Bond whose coupon rate is greater than YTM, trades at premium.

Bond whose coupon rate is lower than YTM, trades at discount.

In the present case, the bond is trading at a discount that is less than $ 1,000. Hence the coupon rate is lower than YTM. It clearly implies that the YTM must be greater than coupon rate of 9%.

So, the correct answer is option of greater than 9%

Feel free to ask in case of any query relating to this question