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NEW QUESTION: 1
A bond has a face value of $1,000, matures in 12 years, and pays an 4% coupon, with interest paid semiannually. If the bond is priced to yield 3.5%, it is selling:
A. at a premium.
B. at a discount.
C. at its maturity value.
D. at par.
Explanation: If the bond is priced to yield 3.5%, it will be selling at a premium. The coupon rate of 4% is also the bond's nominal rate, which is what the bond would be yielding if it were selling at its par value. If it is yielding less than this, it means that the bond is selling for more than its par value, which is the same as its maturity value. A bond that sells for more than its par value is said to be selling at a premium.
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