Question

all else constant, a coupon bond that is selling at a discount, must have: a coupon rate that is equal to the yield to maturity. a market price that is more than par value. semi-annual interest payments. a yield to maturity that is less than the coupon rate. a coupon rate that is less than the yield to maturity.

Answer 1

A coupon bond selling at a discount must have a coupon rate that is less than the yield to maturity because the market interest rates are higher than the bond's coupon rate.

Step-by-step explanation:

If a coupon bond is selling at a discount, all else constant, it implies that the bond's market price is less than its par value. Therefore, the correct statement is a coupon rate that is less than the yield to maturity. When the market interest rates exceed the bond's coupon rate, the bond's yield to maturity will be higher to compensate for the higher available rates in the market. As a result, the bond sells for less than its face value or at a discount to attract buyers. This discount ensures that the overall return (yield to maturity) aligns with prevailing interest rates.