Question

Robert Aston wants to buy a bond that has a coupon rate of 5.5%. The yield...

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

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Answer #1

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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