Which of the following bonds is trading at a premium?
A) a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually
B) a ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually
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 semiannually
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

Question

Quizplus · Accepted Answer

A bond trades at a premium when its coupon rate is higher than the prevailing market interest rate, which leads to its price being higher than its face value. In this case, bond A has a coupon rate of 7.2%, which is higher than its yield to maturity of 7.0%, indicating that it is trading at a premium. The other bonds have coupon rates lower than their yield to maturity, indicating that they are trading at a discount.

Which of the Following Bonds Is Trading at a Premium