Question

Complete the following statements re bond relationships for a bond with a par value of $1,000....

  1. Complete the following statements re bond relationships for a bond with a par value of $1,000. Fill in each blank with either: is less than, is greater than, equals.

  1. Discount Bond Price ______________________ $1,000.
  2. Premium Bond Price ______________________ $1,000.
  3. Discount Bond Coupon Rate ________________ Discount Bond Yield to Maturity.
  4. Premium Bond Coupon Rate ________________ Premium Bond Yield to Maturity.
  5. Par Value Bond Coupon Rate ________________ Par Value Bond Yield to Maturity.
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Answer #1

A bond selling at discount means that is selling below par value. It happens when Coupon rate is lower than Yield to maturity

A bond selling at par means that it is selling at the par value. This happens when coupon rate is equal to the Yield to Maturity

A bond selling at premium means that it is selling above par vale. It happens when coupon rate is greater than yield to maturity

The answers are as follows:

a.Discount Bond Price IS LESS THAN $1,000

b.Premium Bond Price IS GREATER THAN $1,000

c.Discount Bond Coupon Rate IS LESS THAN Discount Bond yield to maturity

d. Premium Bond Coupon Rate IS GREATER THAN Premium Bond yield to maturity

e. Par Value Bond Coupon Rate EQUALS Par Value Bond Yield to maturity

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