When pricing bonds, if a bond's coupon rate is less than the required rate of return, then:

Question

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When a bond's coupon rate is less than the required rate of return, it means that the bond is offering less interest than what investors demand for the given level of risk. Therefore, to make the bond attractive to investors, it must be sold at a discount (below its face value). If held to maturity, the investor will realize a capital gain because the bond will be redeemed at its face value, which is higher than the purchase price. Choices A, C, D, and E do not accurately describe the relationship between coupon rate, required rate of return, and bond pricing.

When Pricing Bonds, If a Bond's Coupon Rate Is Less