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Which $1,000 Face Value Bond below will trade at a premium to its Face Value? Bond Bond A Bond B Bond C Coupon (paid annually) 10% 12% 9% Yield To Maturity 8% 14% 9% Maturity 5-years 5-years 5-years

Which $1,000 Face Value Bond below will trade at a premium to its Face Value? Bond Bond A Bond B Bond C Coupon (paid annually) 10% 12% 9% Yield To Maturity 8% 14% 9% Maturity 5-years 5-years 5-years

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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### Bond Pricing Question **Question:** Which $1,000 Face Value Bond below will trade at a *premium* to its Face Value? #### Bond Details | Bond | Coupon (paid annually) | Yield To Maturity | Maturity | |--------|------------------------|-------------------|-----------| | Bond A | 10% | 8% | 5 - years | | Bond B | 12% | 14% | 5 - years | | Bond C | 9% | 9% | 5 - years | **Options:** - Bond C - None of the bonds - Bond B - Bond A #### Explanation: A bond will trade at a premium when its coupon rate is higher than its yield to maturity. Here: - **Bond A**: Coupon rate (10%) > Yield to maturity (8%) - **Bond B**: Coupon rate (12%) < Yield to maturity (14%) - **Bond C**: Coupon rate (9%) = Yield to maturity (9%) Thus, Bond A will trade at a premium.
Transcribed Image Text:### Bond Pricing Question **Question:** Which $1,000 Face Value Bond below will trade at a *premium* to its Face Value? #### Bond Details | Bond | Coupon (paid annually) | Yield To Maturity | Maturity | |--------|------------------------|-------------------|-----------| | Bond A | 10% | 8% | 5 - years | | Bond B | 12% | 14% | 5 - years | | Bond C | 9% | 9% | 5 - years | **Options:** - Bond C - None of the bonds - Bond B - Bond A #### Explanation: A bond will trade at a premium when its coupon rate is higher than its yield to maturity. Here: - **Bond A**: Coupon rate (10%) > Yield to maturity (8%) - **Bond B**: Coupon rate (12%) < Yield to maturity (14%) - **Bond C**: Coupon rate (9%) = Yield to maturity (9%) Thus, Bond A will trade at a premium.
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