When the price of a bond is above the face value, the bond is said to be trading at a premium.
Added by James C.
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The price of a bond is determined by the present value of its future cash flows, which include periodic interest payments and the repayment of the bond's face value at maturity. Show more…
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A bond pays a coupon of $120. If the market interest rate is 10%, then the bond will sell at __________. If the market interest rate is 15%, then the bond will sell at __________. a) a discount; a premium b) face value; par value c) a premium; a discount d) par value; face value
Brooke B.
If you price a semi-annual coupon bond according to zero coupon prices and no arbitrage, you should get a price that is lower than the price according to the yield to maturity because this would result in an arbitrage opportunity. The zero coupon discount rates do not include the coupon payments of the coupon bond, which is why the price is lower.
Jennifer S.
All else constant, a bond will sell at a premium when the yield to maturity is lower than the coupon rate.
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