The value of a bond selling at a premium that pays semiannual interest is greater than that on an otherwise equivalent annual coupon interest paying bond.

Question

Quizplus · Accepted Answer

A bond selling at a premium has a coupon rate higher than the current market interest rate. The semiannual interest payments on the premium bond are calculated based on the face value of the bond, which is higher than the price at which it is selling, thus resulting in higher interest payments. This results in a higher yield to maturity on the premium bond compared to an equivalent annual coupon interest paying bond, making it more valuable.

The Value of a Bond Selling at a Premium That