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cwang1026
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| Posted: 25 Jan 2012 at 19:07 | IP Logged
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hello all,
this is more FAR related, but came across this section in Wiley BEC review.
If a $1,000 bond sells for $1,125, which of the following is true?
i.) market rate of interest > than coupon rate on bond
ii.) coupon rate > market rate
iii) coupon rate and market rate are equal
iv.) bond sells at premium
v.) bond sells at discount
answer is: ii and v
i can't understand how the coupon rate would be higher than market rate. if the bond is selling at a premium wouldn't that mean the investor is paying more now to reflect the high market rate compared to the coupon rate of the bond?
please help!!
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CPA1979
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| Posted: 25 Jan 2012 at 20:30 | IP Logged
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cwang,
There's an inverse relationship between bond rates and bond prices. If the
bond was sold at a premium this means its coupon rate is higher then
market rate and that's why you would pay more for it so that your yield
reflects mkt rate.
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CPA in IL
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cwang1026
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| Posted: 28 Jan 2012 at 11:02 | IP Logged
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Thank you!
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Topic: bond question
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