Question

73) A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a premium? A) 7% B) 6% C) 8% D) 10%

Answer 1

Answer:

The answer is D. 10%

Explanation:

The coupon rate that must cause the bond to be issued at a premium must be greater than the Yield-to-maturity (YTM).

If it is issued at a coupon rate equals to the Yield-to-maturity (YTM), it is said to be issued at par.

And If it is issued at a coupon rate lower to the Yield-to-maturity (YTM), it is said to be at discounts