Which one of the following applies to a premium bond?

Question

Quizplus · Accepted Answer

A premium bond is one that is trading above its par value. This happens when the coupon rate (the interest rate the bond pays) is higher than the prevailing interest rates or yield to maturity. As a result, the bond's yield to maturity (the total return anticipated on a bond if the bond is held until it matures) will be lower than its coupon rate because the investor pays more for the bond than its face value. The current yield (annual income from the bond divided by the current price of the bond) falls between the coupon rate and the yield to maturity because it reflects the interest income relative to the bond's current price, which is higher than its face value in the case of a premium bond.

Which One of the Following Applies to a Premium Bond