If an investor pays $925 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

If the investor paid $925 for the bond with a face value of $1000, they bought it at a discount. This means that the current yield will be higher than the coupon rate. The coupon rate is the percentage of the face value that the bond pays each year, whereas the current yield is the interest rate the bond pays based on its current price in the market. Therefore, the correct answer is C, the current yield is greater than the coupon rate.

If an Investor Pays $925 for a Bond with a Face