Question

The Market value of a bond will be less than the par value if the market's...

The Market value of a bond will be less than the par value if the market's required yield to maturity is---------------- the coupon interest rate this is known as --------------

A. below , discount bond

B. above , discount bond

C. below , premium bond

D. Above premium bond

E not enough information

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Answer #1

The relationship between Bonds's Price and Yield to Maturity is inverse.

(i)Whenever Yield to Maturity is more than coupon Interest, then price of the bond will be less than the face value of the bond which means bond is sold at discount.

(ii) Whenever Yield to Maturity is less than coupon Interest, then price of the bond is greater than the face value of the bond which means bond is sold at premium.

(iii) Whenever Yield to Maturity is equal to coupon Interest, then price of the bond is greater than the face value of the bond which means bond is sold at par value or face value..

The Market value of a bond will be less than the par value if the market's required yield to maturity is Above than coupon interest rate this is known as Discount Bond.

Hence option B is the correct answer.

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