A bond's coupon rate is 4 percent while comparable yields are 6 percent. The bond will trade:
AAbove face plus
BAt a discount
CAt a premium
DExactly at par
Answer & Solution
Correct answer: B. At a discount
1. Its payments are smaller than the market now demands.
2. Buyers will only take it if the price drops to compensate.
3. So a coupon below the yield means it sells at a discount.
_Source: OpenStax Principles of Finance 2e, Chapter 10, Bonds and Bond Valuation._
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