Question

**QUESTION 8**

A. If the coupon rate on a bond is 4%, and the bond is selling at a discount, the yield to maturity is

higher than 4% |
||

lower than 4% |
||

equal to 4% |

B. If the coupon rate on a bond is 7%, and the bond is selling at a premium, the yield to maturity is

higher than 7% |
||

lower than 7% |
||

equal to 7% |

C. If the coupon rate on a bond is 5%, and the bond is selling at its face value, the yield to maturity is

higher than 5% |
||

lower than 5% |
||

equal to 5% |

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.**

**a. Since the bond is selling at a discount, hence coupon
rate will be lower than the YTM. So, the yield to maturity must be
higher than 4%.**

**b. Since the bond is selling at a premium, hence coupon
rate will be higher than the YTM. So, the yield to maturity must be
lower than 7%.**

**c. Since the bond is selling at face value, hence the
yield to maturity is equal to 5%.**

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

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a
20 year, 8% coupon rate, $1,000 par bond that pays interest
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QUESTION 24
Questions 24 to 27:
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