Question

Which of the following is (are) true?
A) If the yield to maturity is greater than the coupon rate, the bond will sell at a premium.
B) If the yield to maturity is less than the coupon rate, the bond will sell at a premium.
C) Market prices and interest rates are positively correlated.
D) all of the above

Answer 1

Ans is B If the yield to maturity is less than the coupon rate, the bond will sell at a premium.

Explanation: Yield to maturity is generally equal to its coupon rate when its sold at par, and Yield to maturity is less than coupon rate when its sold at premium and yield to maturity is more than coupon rate when its sold at discount also market rate is negatively correlated to its interest rate i.e when interest rate increases market price goes down and vice versa.

So as per the rule Option A is incorrect, Option B is correct since YTM < Coupon when sold at premium

Option C is incorrect since market price and interest rate is negatively correlated, only option B is correct so option D is also incorrect.