If an investor pays $1,025 for a bond with a face value of $1,000 and annual payments, it follows that
A) the current yield and coupon rate are equal.
B) the coupon rate is greater than the current yield.
C) the current yield is greater than the coupon rate.
D) Insufficient information is provided to answer this question.

Question

Quizplus · Accepted Answer

The coupon rate is fixed and determined by the bond's face value and the annual payments. Since the investor pays more than the face value ($1,025 > $1,000), the yield (interest/investment) they receive based on their investment will be lower than the coupon rate, which is based on the face value.

If an Investor Pays $1,025 for a Bond with a Face