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19 June, 06:51

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 10 %, which of the following coupon rates will cause the bond to be issued at a premium?

A) 8%

B) 12%

C) 7%

D) 10%

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Answers (1)
  1. 19 June, 07:05
    0
    B) 12%

    Explanation:

    As we know that the coupon rate and YTM is equal if it is sold at par. If the coupon rate is less than the YTM than the bond is sold at discount and if the coupon rate is more than the YTM than the bond is sold at premium

    Since the question is asking about the coupon rate if the bond is sold at premium so the coupon rate would be higher than the YTM.

    So, the coupon rate would be 12%
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Home » Business » 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 10 %, which of the following coupon rates will cause the bond to be issued at a premium? A) 8% B) 12% C) 7% D) 10%
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