Investment VehiclesQuestion 18 of 110
A bond is trading at a premium to par. Which relationship is true?
a.The current yield and yield to maturity are lower than the coupon rate
b.The yield to maturity is higher than the coupon rate
c.The bond must be in default
d.The coupon rate equals the yield to maturity
Explanation
When a bond trades above par (at a premium), its yield to maturity is below its coupon rate, and current yield falls between the two. Bonds trade at a premium when market rates fall below the coupon. A discount bond, by contrast, has a yield to maturity above the coupon.
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