Question

(b) Suppose there are two bonds with the same yield-to-maturity and date to mature; but one is sold at premium, the other one is sold at discount. Could you tell me which bond has a higher coupon? Why?

(c) Is there any difference in prices between these two bonds mentioned in (b) at the end of their duration? Why?

Short Answer

Answer 1

b) The two bonds have the same yield and the same date to maturity. The one which is sold at a premium is the bond which has the higher coupon rate. The other bond which is selling at a discount is the bond with the lower coupon rate.

As the bond is sold ar a premium due to the higher coupons.

(c) Yes, due to the differences in the coupon paid in the bonds, the one with a higher coupon is sold at a premium that is at a higher price and the one with a lower coupon is sold at a discount that is at a lower price.