If a bond is priced at par value,then:
A) it has a very low level of default risk.
B) its coupon rate equals its yield to maturity.
C) it must be a zero-coupon bond.
D) the bond is quite close to maturity.

Question

Quizplus · Accepted Answer

When a bond is priced at par value, it means that its market price is equal to its face value. This implies that the yield to maturity (which is the interest rate at which the present value of all future cash flows of the bond equals its current market price) is equal to the coupon rate (which is the fixed interest rate paid by the issuer of the bond to its holder every year). Therefore, choice B is the correct answer. Option A is incorrect because the default risk of a bond does not depend on its market price but on the creditworthiness of the issuing company. Option C is incorrect because zero-coupon bonds do not have a coupon rate. Option D is also incorrect because the maturity of a bond is not related to its market price but to the length of time until its face value is returned to its holder.

If a Bond Is Priced at Par Value,then