If a bond's price is lower than the principal amount, its yield to maturity will be ________ the coupon rate.

Question

Quizplus · Accepted Answer

When a bond's price is lower than its principal amount (also known as selling at a discount), its yield to maturity will be higher than the coupon rate. This is because the investor is effectively getting a "deal" on the bond, buying it for less than its face value, and thus the yield (which accounts for the bond's price, coupon payments, and time to maturity) will be higher to reflect this discount.

If a Bond's Price Is Lower Than the Principal Amount