Which of the following relationships holds TRUE if a bond sells at a discount?
Correct answer: A. Bond Price < Par Value and YTM > coupon rate
- A. Bond Price < Par Value and YTM > coupon rate
- B. Bond Price > Par Value and YTM > coupon rate
- C. Bond Price > Par Value and YTM < coupon rate
- D. Bond Price < Par Value and YTM < coupon rate
Explanation
A bond sells at a discount when its price is below par value, usually because its coupon rate is below the market-required return. Therefore, its yield to maturity exceeds its coupon rate.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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