CFA Level I · CFA Level I Exam · Fixed-Income Bond Valuation: Prices and Yields
Two option-free bonds have the same maturity and the same yield-to-maturity of 4%. Bond X has a coupon rate of 6% and Bond Y has a coupon rate of 2%. Compared with face value, the prices of X and Y are most likely:
Bond X trades above par and Bond Y below par. When the coupon rate exceeds the market yield, the bond pays more than investors require and sells at a premium; when the coupon rate is lower than the yield, it sells at a discount.
- AX above par and Y below parCorrect
- Bboth at par
- CX below par and Y above par
Explanation
A bond with a coupon rate above its yield sells at a premium, and one with a coupon rate below its yield sells at a discount. X (6% vs 4%) is at a premium; Y (2% vs 4%) is at a discount.
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