Two bonds are identical in risk, maturity date, and face value, but one coupon rate is 10% and the other is 8%. The market yield on similar bonds is 9%.

Question

Quizplus · Accepted Answer

A) The 10% coupon bond offers a higher interest rate than the market yield, making it more valuable and thus selling at a premium. The 8% coupon bond offers a lower interest rate than the market yield, making it less valuable and thus selling at a discount. C) Regardless of their coupon rates, bonds tend to converge towards their face value as they approach their maturity date, assuming no change in credit risk.

Two Bonds Are Identical in Risk, Maturity Date, and Face