2024 CFA Level I Exam: CFA Study Preparation

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Bonds that have coupon rates ______ than market rates will sell at a ______.

I. higher; premium
II. lower; discount
III. higher; discount
IV. lower; premium

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.

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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.