Scan QR code or get instant email to install app
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.
Take more free practice tests for other PASSEMALL topics with our cfa exam prep now!
Related Information
Comments