If a bond is selling for a premium, that implies
1) interest rates have risen
2) interest rates have fallen
3) the yield to maturity exceeds the current yield
4) the yield to maturity is less than the current yield
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

If a bond is selling for a premium, that implies​
1) interest rates have risen
2) interest rates have fallen
3) the yield to maturity exceeds the current yield
4) the yield to maturity is less than the current yield
A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Quizplus · Accepted Answer

When a bond sells for a premium, it means the bond's coupon rate is higher than the prevailing interest rates, implying that interest rates have fallen (2). Also, when a bond sells at a premium, its yield to maturity is less than its current yield (4), because the bond's price is above its par value, reducing the yield to maturity compared to the current yield based on the higher purchase price.

If a Bond Is Selling for a Premium, That Implies​

If a Bond Is Selling for a Premium, That Implies