Suppose a bond has a coupon rate of 6% and a yield to maturity of 8%. Will this bond be priced as a discount bond or a premium bond? Explain.
Question 20.4: Suppose a bond has a coupon rate of 6% and a yield to maturi...
When the yield to maturity is higher than the coupon rate, the bond will sell at a discount from its face value. This is because the market is demanding the higher yield than what the bond produces through the coupon; the remainder of the yield is from the appreciation in the bond from its discounted value to its face value.
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