If a bond is purchased at a price below the face value,the yield to maturity is:
A)greater than the stated interest rate.
B)the same as the stated interest rate.
C)less than the stated interest rate.
D)zero.
E)of no significance.

Question

Quizplus · Accepted Answer

When a bond is purchased at a price below its face value, it is known as buying at a discount. In this case, the yield to maturity is greater than the stated interest rate since the investor pays less than the face value but receives the full face value at maturity, which includes the interest payments. Simply put, the yield to maturity is a measure of the total return on the investment, and if the investor buys at a discount, the total return will be higher than the stated interest rate.

If a Bond Is Purchased at a Price Below the Face