Question

true false greater than 11 percent a bond with an $100 annual interest payment with five years to maturity would sell for a premium if interest rates were below 9 percent

Answer 1

True

Step-by-step explanation:

Since annual interest payment, coupon payment, is $100, it shows that the face value of the bond is $1,000, effectively the coupon rate is 10%($100/$1000) whereas the discount rate which is the yield to maturity with which to present value the future cash flows is below 9%, and when coupon rate is greater than the yield, the bond sells at a premium to its face value.

Since the coupon rate is higher it is safe to conclude that the bond would sell at a premium