If the market price of a bond is less than the par value, then the coupon rate is:
A) Less than the par yield.
B) Greater than the required yield to maturity.
C) Equal to the market interest rate.
D) Below the riskless rate.
E) None of the above.

Question

Quizplus · Accepted Answer

When the market price of a bond is less than its par value, it indicates that the coupon rate (the interest rate the bond pays annually) is less than the par yield, which is essentially the bond's yield to maturity at par value. This situation arises because the bond is offering a lower return compared to the current market interest rates, making it less attractive unless sold at a discount (below par value).

If the Market Price of a Bond Is Less Than