Asked by Melissa Figueroa on Jul 07, 2024
Verified
The coupon rate will be less than the yield to maturity when a bond sells at a discount.
Coupon Rate
The annual interest rate paid by bond issuers on the bond's face value.
Yield To Maturity
The total return anticipated on a bond if the bond is held until it matures, considering all interest payments and the repayment of principal.
Discount
The reduction applied to the original price of goods or services, often to encourage sales.
- Comprehend the interrelationship between coupon rates, bond prices, and market interest rates.
Verified Answer
TR
Talvi RaamatJul 08, 2024
Final Answer :
True
Explanation :
When a bond sells at a discount, it means the market interest rates are higher than the bond's coupon rate, causing the bond to offer a yield to maturity that is greater than the coupon rate to compensate investors for the lower initial price.
Learning Objectives
- Comprehend the interrelationship between coupon rates, bond prices, and market interest rates.