Question

Which of the following correctly describes the relationship between a bond's yield to maturity (YTM) and a bond's coupon rate?

		(A) The YTM will equal the coupon rate when the bond is selling at a premium.
		(B) The YTM will equal the coupon rate when the bond is selling at a discount.
		(C) The YTM will equal the coupon rate when the bond is selling at par.

Answer 1

option (c) i.e. "YTM will equal the coupon rate when bond is selling at par" is the correct answer.

YTM (Yield to maturity) is the discount rate used to compute the price of bond by computing its present value.

Coupon rate refers to the rate of interest earned on the bond.

If coupon rate, becomes equal to YTM, then the currenct price of Bond will come out to be its par value.

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