Homework Answers
Answer:Option(4) Lower; Premium.
A Bond is said to be trading at premium if the bond is trading at a price highre than par value.
Bonds have an inverse relationship to interest rate. When interest rates rise, bond prices fall, and vice-versa.
If bonds pay a fixed interest rate that becomes more attractive if interest rates fall as there will be more investor demand that will drive up the price of the bond. In the given case at the given coupon rate bond is trading at premium i.e., above par, which happens only when the market interest rates are lower than Coupon Rate.
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