Discount on bond: When a bond is issued at a price less than its face value or par value, it is called a discounted bond. Zero coupon bonds are always issued at discount and redemption is made at fair value. The difference between the issue price and face value is the profit earned on zero coupon bonds. Coupon rate The coupon rate is simply the rate at which annual coupon payment is made by the issuer of a bond. The rate is set at the time of issue of the bond and the same rate is mentioned in the bond certificate. To determine: The yield of a bond exceeds bond’s coupon rate when traded at a discount.

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Chapter 6, Problem 5CT

Summary Introduction

Discount on bond:

When a bond is issued at a price less than its face value or par value, it is called a discounted bond. Zero coupon bonds are always issued at discount and redemption is made at fair value. The difference between the issue price and face value is the profit earned on zero coupon bonds.

Coupon rate

The coupon rate is simply the rate at which annual coupon payment is made by the issuer of a bond. The rate is set at the time of issue of the bond and the same rate is mentioned in the bond certificate.

To determine:

The yield of a bond exceeds bond’s coupon rate when traded at a discount.

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