A $1,000 par bond with an 8% semi-annual coupon sells at a discount to par. What...
A $1,000 par bond with an 8% semi-annual coupon sells at a discount to par. What must be true about the bond?
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A. It is underpriced
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B. It is in default
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C. It has a yield to maturity greater than 8%
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D. None of the above
Homework Answers
Answer: Option C is correct.
When yield to maturity>Coupon rate, a bond sells at discount, so
the yield to maturity must be greater than coupon rate of 8%
When yield to maturity<Coupon rate, a bond sells at
premium
When yield to maturity=Coupon rate, a bond sells at par
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