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Basic Question 1 of 4
Bonds that have coupon rates ______ than market rates will sell at a ______.
II. lower; discount
III. higher; discount
IV. lower; premium
I. higher; premium
II. lower; discount
III. higher; discount
IV. lower; premium
User Contributed Comments 8
| User | Comment |
|---|---|
| gsuwp | I think it is III and IV |
| weez | Its 1 and 2. Basically the bond will trade at a premium when coupon rates are higher than mkt rates because the investor owns something worth more than the general market has. So if he were to sell it, he would command more $$ |
| AyshaAli | when the coupon rate is higher than the market rate then it the investor will be getting more income, hence the bond price will be higher and vice versa. |
| gazza77 | gsuwp you can sell me your higher paying bonds for less than par and i'll sell you my low yeilding bonds for a premium. Sounds fair to me |
| reganbaha | That's OK, you thought wrong. |
| khalifa92 | @gsuwp when the rate used in the calculation is the market interest rate(r): 1- if r > coupon rate = premium 2- if r = coupon rate = trades at par 3- if r < coupon rate = discount when the rate used in the calculation is yield to maturity (I/Y): 1- if I/Y > coupon rate = discount 2- if I/Y = coupon rate = trades at par 3- if I/Y < coupon rate = premium why ? because both have different definitions. In the BAII calculator in the time value of money line it says I/Y because its the implied rate. |
| khalifa92 | r = required rate of return in market for investors to take on risk. I/Y= internal rate of return to discount future cashflows to equap present value. |
| khalifa92 | my comments are wrong. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
calculate a bond's price given a yield-to-maturity on or between coupon dates
CFA® 2024 Level I Curriculum, Volume 4, Module 6.