Final answer:
The true statement is that a discount bond has a coupon rate that is less than the bond's yield to maturity. This is because the yield on a discount bond also reflects capital gains that are realized when it matures at its face value, which is higher than the purchase price.
Step-by-step explanation:
Among the given statements about bonds, the true statement is: 5) A discount bond has a coupon rate that is less than the bond's yield to maturity. When a bond is sold at a discount, this means that the market interest rates are higher than the bond's coupon rate, causing it to be sold for less than its face value. The yield to maturity in this case will include not only the coupon payments but also the capital gain earned when the bond matures at its higher face value. Hence, if you purchase a discount bond, over time, the return you earn on the bond, which is the yield to maturity, will be higher than the coupon rate specified on the bond itself.
Conversely, for a premium bond, where the purchase price is higher than the face value, the yield to maturity is actually lower than the coupon rate because part of the yield compensates for the premium paid. Therefore, options 1, 2, 3, and 4 are not accurate descriptions of bond yields and their relationships with coupon rates or current yields.