If a bond is selling at a discount, which of the following statements is correct?
A) The yield to maturity must be greater than the coupon rate.
B) The coupon rate must be greater than the yield to maturity.
C) The bond must have a low bond rating.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

When a bond is selling at a discount, it means the market interest rates are higher than the bond's coupon rate. Therefore, to make the bond attractive to investors, it sells for less than its face value. This situation leads to a yield to maturity that is greater than the coupon rate, as investors will earn more over the bond's life than the initial lower purchase price suggests. The bond's rating (choice C) is not directly related to whether it sells at a discount or premium.

If a Bond Is Selling at a Discount, Which of the Following