Which of the following is correct for a bond currently selling at a premium to par?
A) Its current yield is higher than its coupon rate.
B) Its current yield is lower than its coupon rate.
C) Its yield to maturity is higher than its coupon rate.
D) Its default risk is extremely low.

Question

Quizplus · Accepted Answer

When a bond is selling at a premium to par, the yield to maturity (YTM) is lower than its coupon rate. This means the bond is offering a lower return on investment than its stated coupon rate. Therefore, the current yield of the bond (which uses the current market price instead of par value) would also be lower than the coupon rate.

Which of the Following Is Correct for a Bond Currently