A company releases a five-year bond with a face value of $1000 and coupons paid semi-annually.If market interest rates imply a YTM of 6%,which of the following coupon rates will cause the bond to be issued at a premium?
A)3%
B)4%
C)6%
D)8%
E)5%

Question

Quizplus · Accepted Answer

Since the bond is being issued when market interest rates imply a YTM of 6%, the bond will only be issued at a premium if the coupon rate is greater than the YTM. Therefore, we need to choose the coupon rate that is greater than 6%. Option D has a coupon rate of 8%, which is greater than the YTM of 6%, so this bond will be issued at a premium. All other options have coupon rates that are less than or equal to the YTM, so those bonds would be issued at a discount or at par.

A Company Releases a Five-Year Bond with a Face Value