If an investor purchases a bond when its current yield is less than the coupon rate, then the bond's price will be expected to:
A)Decline over time, reaching par value at maturity
B)Increase over time, reaching par value at maturity
C)Be less than the face value at maturity
D)Exceed the face value at maturity

Question

Quizplus · Accepted Answer

When the current yield is less than the coupon rate, it means the bond is priced at a premium. Over time, the bond's price will be pulled down towards its par value as the coupon payments represent a smaller portion of the total return. Therefore, the bond's price is expected to decline over time, reaching par value at maturity.

If an Investor Purchases a Bond When Its Current Yield