ABC Corp has issued 10-year and 15-year bonds that mature on the same day and have...

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ABC Corp has issued 10-year and 15-year bonds that mature on the same day and have...

ABC Corp has issued 10-year and 15-year bonds that mature on the same day and have the exactly same yield to maturity. If the current price of the 10-year bond is $889.60 and of the 15-year bond is $1,194.24, then which one of the bonds has a higher coupon rate?

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Answer 1

Answer #1

A bond with YTM higher than the coupon rate is traded at a discount i.e. at a price lower than its face value. Similarly a bond with YTM lower than the coupon rate is traded at a premium i.e. a price higher than its face value.

As such, the 10 year bond that is traded at $889.60 i.e. lower than face value would have higher coupon rate.

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Answer 2

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