Final answer:
For a premium bond, the coupon rate is higher than both the yield to maturity and the current yield, while the current yield is simply the annual coupon payments divided by the bond's current price. For a premium bond, the correct choice is (e) the coupon rate exceeds both the yield to maturity and the current yield.
Step-by-step explanation:
For a premium bond, the correct choice is (e) the coupon rate exceeds both the yield to maturity and the current yield. Let's break down why this is the case. A premium bond is one that is trading above its face value because the coupon rate is higher than prevailing market interest rates. As an investor holds the bond to maturity, they will receive coupon payments that exceed the yield they could otherwise obtain in the market. However, because they paid more than the face value for the bond, the overall yield to maturity will be lower than the coupon rate. The current yield is simply the bond's annual coupon payments divided by its current price and does not account for capital gains or losses if held to maturity, which is why the current yield will also be lower than the coupon rate for a premium bond.