Question

All else constant, a coupon bond that is selling at a discount must have A. a...

All else constant, a coupon bond that is selling at a discount must have

A.

a coupon rate that is equal to the bond yield

B.

a bond yield that is less than the coupon rate

C.

a market price that is higher than face value

D.

semi-annual coupon payments

E.

a coupon rate that is less than the bond yield

Homework Answers

Answer #1

Whenever a bonds coupon rate is equal to the yield to maturity, the bond sells at par.

Whenever a bonds coupon rate is more than the yield to maturity, the bond sells at premium.

Whenever a bonds coupon rate is less than the yield to maturity, the bond sells at discount.

In the given case the bond is selling at a discount and hence it implies that option E i.e. a coupon rate that is less than the bond yield is the correct answer.

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