Which one of the following must be correct for a bond currently selling at a premium?
A)its coupon rate is variable.
B)its current yield is lower than its coupon rate.
C)its yield to maturity is higher than its coupon rate.
D)its coupon rate is lower than the current market rate on similar bonds.

Question

Quizplus · Accepted Answer

When a bond sells at a premium, it means the bond's market price is above its face value. This typically occurs because the bond's coupon rate is higher than the current market interest rates for similar bonds. As a result, the bond's current yield, which is the annual interest payment divided by the current market price, will be lower than the coupon rate because the denominator (the bond's price) is higher in the calculation of current yield.

Which One of the Following Must Be Correct for a Bond