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27 August, 08:50

All else constant, a coupon bond that is selling at a premium, must have:

a. a yield to maturity that is less than the coupon rate.

b. a market price that is less than par value.

c. a coupon rate that is less than the yield to maturity.

d. a coupon rate that is equal to the yield to maturity.

e. semiannual interest payments.

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  1. 27 August, 12:48
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    a. A yield to maturity that is less than the coupon rate.

    Explanation:

    If a coupon bond is selling at premium, this implies its current market price is higher than its par (face) value. But the coupon rate remains the same. So, since the price of bond has risen, the current market interest rate (yield to maturity) has to be less than the coupon rate. This is because the interest payment should be near about same or identical in case, when the bond is selling at premium and also in the case when the bond was selling at its par rate or value.

    Hence, to arrive at around about the same interest payment, all else constant, a coupon bond that is selling at a premium, must have a yield to maturity that is less than the coupon rate.
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