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Question:

Bond X and Bond Y were issued at a premium to par value three years ago. Bond X matures in five years, and Bond Y matures in ten years. Both bonds carry the same credit rating. Bond X has a coupon of 7.25%, and Bond Y has a coupon of 8.00%. If the yield to maturity for both bonds is 7.60% today:

A Bond X is priced at a discount, and Bond Y is priced at a premium.
explanation

Because Bond X has a coupon rate that is below the required yield, it will trade at a discount to par. Bond Y, with a coupon rate greater than the required yield, will trade at a premium to par. The fact that both bonds were issued at premiums does not matter, nor does the difference in time to maturity.

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