Question

Why would a bond with a yield higher than the coupon rate sell at a discount? Why would a bond with a yield lower than the coupon rate sell at a premium?

Answer #1

Yield on a bond is comprised of two parts namely Coupon rate and Capital gain .

If any bond is selling at a discount ,it means there will be capital gain on redemption because bond at maturity will be redeemed generally at Face value and hence there will be a capital gain yield .

And yield on bond = Coupon rate + capital gain yield

And hence Bond will have yield greater than coupon rate

Similarly ,If bond is selling at a premium and will be redeemed at face value then there will be capital loss

And Yield = Coupon rate - Capital loss

And hence yield on bond selling at premium will be lesser than coupon rate

Why does a bond sell at a discount when the coupon rate is lower
than the required rate of return?

Explain why bonds sell for below par when the yield to maturity
is higher than the coupon rate and why they sell for above par when
the yield to maturity is lower than the coupon rate?

Explain why bonds sell for below par when the yield to maturity
is higher than the coupon rate and why they sell for above par when
the yield to maturity is lower than the coupon rate

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 the discount rate or yield to maturity is lower than the
coupon rate the bond price is less than its par value.
a. True
b. False

A bond selling at a discount should have:
A coupon rate lower than the YTM
A coupon rate higher than the YTM
A current yield equal to the YTM
A coupon rate equal to the YTM

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...

Choose all correct statements.
The yield to maturity on a discount bond exceeds the bond's
coupon rate
The higher the yield to maturity, the lower the current price
of the bond.
All else equal, the current price of a bond increases when the
coupon rate decreases.
The regular interest payment of a bond is called the coupon
payment.

Why
does a bond discount have a higher interest interest expense than a
bond premium

A discount bond:
Select one:
a. Has a coupon rate which is greater than the yield to
maturity.
b. Has a par value which is less than the market value.
c. Has a coupon rate which is less than the market rate of
interest.
d. Is selling for more than face value.
e. Is the name given to a bond that has been called prior to
maturity.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 9 minutes ago

asked 11 minutes ago

asked 12 minutes ago

asked 24 minutes ago

asked 25 minutes ago

asked 26 minutes ago

asked 27 minutes ago

asked 33 minutes ago

asked 33 minutes ago

asked 34 minutes ago

asked 37 minutes ago