When a bond's yield to maturity is higher than the bond's coupon rate, the bond:
A. has a high risk of default
B. has reached its maturity date
C. is selling at a discount
D. is priced at par
E. is selling at a premium
When a bond's yield to maturity is higher than the bond's coupon rate, the bond is selling at a discount.
Option C is correct
Yield to maturity > Coupon rate: Discount bond
Yield to maturity = Coupon rate: Par bond (So, option D is incorrect)
Yield to maturity < Coupon rate: Premium bond (So, option E is incorrect)
Option A is incorrect because relationship between yield to maturity and coupon rate doesn't tell anything about default risk
Option B is incorrect because when the maturity date is reached the bond sells at par
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