Robert Aston wants to buy a bond that has a coupon rate of 5.5%. The yield to maturity for the bond is 6%. What is the purchase price going to be compared to the par value of the bond?
A) The bond will sell at par
B) The bond will sell at a premium
c) the bond will sell at a price set by auction
D)the bond will sell at a discount
Option D is correct. the bond will sell at a discount
When YTM > Coupon, the value of the Bond will always be below par and;
When YTM < Coupon, the value of the Bond will always be above par and;
When YTM = Coupon, the value of the Bond will always be equal to Par.
Therfore Option D is correct as YTM > Coupon Rate.
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