Identify/explain the relationship between coupon rate and yield to maturity for: Discount Bonds Premium Bonds Par Val...
- Identify/explain the relationship between coupon rate and yield to maturity for:
-
- Discount Bonds
- Premium Bonds
- Par Value Bonds
Homework Answers
The relationship between coupon rate and yield to maturity is :
a. In a discount bond, the coupon rate is less than the yield to maturity.
Due to the higher YTM, the coupons are discounted at a higher rate hence it is a discount bond.
b. In the case of premium bonds, the coupon rate is higher than the yield to maturity. As the coupons are higher than the YTM, the bond is a premium bond.
c. Par value bonds are bonds where the coupon rate is equal to the YTM. As the coupon is equal to the YTM, the coupon payments are discounted at the YTM, which makes it a par value bond.
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Identify/explain the relationship between coupon rate and yield to maturity for: Discount Bonds Premium Bonds Par Val...
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