A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a premium?
A) 7%
B) 6%
C) 8%
D) 10%

Question

Quizplus · Accepted Answer

A bond is issued at a premium when its coupon rate is higher than the market interest rate (YTM). In this case, a coupon rate of 10% is higher than the market YTM of 8%, causing the bond to be issued at a premium.

A Company Releases a Five-Year Bond with a Face Value