Products & Their RisksQuestion 37 of 398
For a bond purchased at a discount, which of the following relationships is correct?
a.Coupon rate < current yield < yield to maturity
b.Coupon rate > current yield > yield to maturity
c.Coupon rate = current yield = yield to maturity
d.Yield to maturity < coupon rate < current yield
Explanation
For a discount bond, the yields rank from lowest coupon to highest yield to maturity: coupon < current yield < YTM, because the investor also gains the difference between the discounted purchase price and par at maturity. The premium bond shows the reverse order, and only a par bond has all three equal.
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