CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A bond is issued with a coupon rate of 4% and the market required yield for similar bonds at issuance is 5%. The bond will most likely be issued at:
The bond will most likely be issued at a discount to par. Its 4% coupon is lower than the 5% yield investors require, so the present value of its cash flows at the required yield is less than par value.
- Aa premium to par value
- Bpar value
- Ca discount to par valueCorrect
Explanation
When the coupon rate is below the market required yield, the bond's cash flows discounted at the higher yield are worth less than par. The bond therefore sells at a discount. A premium would require a coupon above the market yield.
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