Asked by Surprise Bahati Mutunwa on Apr 27, 2024
Verified
All else constant, a coupon bond that is selling at a premium, must have:
A) A coupon rate that is equal to the yield to maturity.
B) A market price that is less than par value.
C) Semi-annual interest payments.
D) A yield to maturity that is less than the coupon rate.
E) A coupon rate that is less than the yield to maturity.
Premium
The amount by which the price of a financial instrument or commodity exceeds its principal or face value, or the amount paid for an insurance policy.
Coupon Rate
The yearly rate of interest that the entity issuing a bond pays to its investors, typically shown as a portion of the bond's nominal value in percentage terms.
- Master the components that affect the valuation of bonds and their linkage to the rates of interest in the market.
Verified Answer
ZK
Zybrea KnightMay 03, 2024
Final Answer :
D
Explanation :
A coupon bond selling at a premium means its market price is higher than its par value, which occurs when its coupon rate is higher than the yield to maturity. This is because investors are willing to pay more for a bond that offers higher periodic interest payments compared to the current market rates.
Learning Objectives
- Master the components that affect the valuation of bonds and their linkage to the rates of interest in the market.