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A bond with an annual coupon of $50 originally sold at par for $1,000 (several years...

A bond with an annual coupon of $50 originally sold at par for $1,000 (several years ago). Today, the YTM on this bond is currently 6%. This bond will currently sell at a_____________? a) discount b)premium

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Answer #1

The Answer is DISCOUNT

The annual coupon of bond is 50. That is the coupon rate is

= 5 %

The YTM on the bond is 6%., which is more than the coupon rate of 5%

If the YTM is less than the bond’s coupon rate, the bond will be selling at greater than par value that is at premium. If a bond’s coupon rate is less than its YTM, then the bond will be selling at a discount. If a bond’s coupon rate is equal to its YTM, then the bond will be selling at par that is price equal to the face value.

Since this bond's YTM is more than the coupon rate, This bond will currently sell at a DISCOUNT

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