Question

Which of the following statement is false?

A) If the bond trades at a discount, and investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond.
B) Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at, or very near to, par.
C) Coupon bonds always trade for a discount.
D) At any point in time, changes in market interest rates affect a bond's yield to maturity and its price.

Answer 1

The answer is: C) Coupon bonds always trade for a discount.

Step-by-step explanation:

Discount bonds: If a bond offers a coupon rate that is lower than prevailing interest rates, it will trade at a discount. Discounted bonds are currently priced lower than its original price (its par value).

Premium bonds: If a bond offers a coupon rate that is higher than prevailing interest rates, it will trade at a premium. Premium bonds are currently priced higher than its original price (its par value).

Answer 2

C) Coupon bonds always trade for a discount.

Step-by-step explanation:

"A coupon bond, also referred to as a bearer bond or bond coupon, is a debt obligation with coupons attached that represent semiannual interest payments. With coupon bonds, there are no records of the purchaser kept by the issuer; the purchaser's name is also not printed on any kind of certificate. Bondholders receive these coupons during the period between the issuance of the bond and the maturity of the bond." Trade them for a discount is not a common characteristic of coupon bonds.

Reference: Chen, James. “Coupon Bond.” Investopedia, Investopedia, 18 Sept. 2019