Which of the following bonds is trading at a premium?
A)a five-year bond with a $2000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semi-annually
B)a ten-year bond with a $4000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semi-annually
C)a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semi-annually
D)a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid monthly
E)a 20-year bond with a $5000 face value whose yield to maturity is 10.0% and coupon rate is 6.5%

Question

Quizplus · Accepted Answer

A bond is trading at a premium when its price is higher than its face value. Since the coupon rate on bond A is higher than its yield to maturity, this suggests that its price is greater than its face value, making it a bond trading at a premium. The other bonds listed have coupon rates lower than their respective yields to maturity, indicating that they are trading at discounts.

Which of the Following Bonds Is Trading at a Premium