A bond has a face value of $1,000, matures in 10 years, and pays an 8% coupon, with interest paid semiannually. If the bond is priced to yield 8.8%, it is selling:

Question

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If the bond is priced to yield 8.8%, it is selling at a discount. Its nominal yield is the same as its coupon rate, 8%, which is what it would yield if it were selling at its par value, which is the same as its maturity value and its face value--$1,000. In order to be yielding more than this, the bond has to be selling for less than its face value, such that investors are also getting a return from capital gains. A bond that is selling below its face value is said to be selling at a discount.

A Bond Has a Face Value of $1,000, Matures in 10