Answered

A company releases a? five-year bond with a face value of? $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a? premium?

A. 6%

B.10%

C. 8%

D. 5%

Answer :

Parrain

Answer: B.10%

Explanation:

For a bond to be issued at a premium, the Coupon rate needs to be higher than the current Market Yield to Maturity as this will cause the price of the bond to be higher than Par signifying that the bond is an attractive one.

If the Coupon rate is equal to the YTM then the bond will trade at Par.

If the Coupon rate is less than the YTM then the bond will trade at a discount.

Tundexi

Only 10% of the coupon rate will allow the bond by issued at a premium.

The coupon rate of a a bond refers to the amount of interest income earned each year based on the face value.

The yield to maturity of a band refers to the total estimated return if the bond is held until maturity.

  • When coupon rate is equal to YTM at issue, then, bond is issued at par value.

  • When coupon rate is lower than YTM at issue, then, bond is issued at a discount.

  • When coupon rate is higher than YTM at issue, then, bond is issued at a premium.

Therefore, the Option B is correct because only 10% of the coupon rate will allow the bond by issued at a premium

See similar solution here

brainly.com/question/17030252

Other Questions