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 |
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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