A Bond Sells at a Discount When the:

Its coupon rate is greater than its current yield and its current yield is greater than its yield to maturity. For example if interest rates have risen since the bond was purchased the bondholder may have to sell at a discountbelow par.

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To understand this concept remember that a bond sold at par has a coupon rate equal to the market.

. Suppose K d 17 on previous example. Stated rate is higher than the coupon rate. Correct answer is b.

The discount rate that will set the present value of the payments equal to the bond price iii. The face value or par value of a bond is the principal due when the bond matures. As part of the bond issuance process the issuer sets a.

A discount bond in contrast has a coupon rate lower than the prevailing interest rate for that bond maturity and credit quality. A company issues 9 20-year bonds with a par value of 750000. Answered Interactive Q A verified and approved by Studydeets for question When the contract rate is above the market ratea bond sells at a discount.

For example a bond with a par value of 1000 is selling at a premium when it can be bought for more than 1000 and is selling at a discount when it. Bonds sell at a discount when the coupon rate is less than the current interest rate for bonds. For example a bond with a par value of 1000 that is trading at 980 has a bond discount of 20.

Bonds will sell at a discount when the a. A bond will sell at a discount when the market or effective rate of interest is higher than the stated rate of interest on the bond. Therefore the interest paid on the bond would remain the same whether bonds sell at a discount or premium as it considered only the par value not the selling value.

Contract rate is below the market rate. 3 on a question. The yield to maturity on a bond is.

Bond Value 70 1 017 2 -1 017 2 1 017 2 10 1000 1 017 2 10 Bond Value 90158. Above the coupon rate when the bond sells at a discount and below the coupon rate when the bond sells at a premium ii. Bond has a short-term life.

A bond sells at a discount when the. Contract rate is equal to the market rate. A bond sells at a discount when the.

Bond pays interest only once a year. The bond sells at a discount of 9842 9842 1000 - 90158. In contrast when the market or effective rate of interest is lower than the stated rate the bond will sell at a premium.

A bond premium occurs when market interest rate is lower than the bonds coupon rate and the bond sells at a price higher than the face value. Contract rate is above the market rate. An example may clarify this distinction.

Contract rate is below the market rate. Bonds are sold at a discount when the market interest rate exceeds the coupon rate of the bond 1 X Research source. Alternatively it may currently be trading at a price below its face value.

If the price of the bond falls to 800 then the yield-to-maturity will change from 2 to 25 ie 20800 25. Effective yield is equal to the market rate. Lets say you own an older bondone that was originally a 10-year bond when you bought it five years ago.

Bonds are sold at a discount when the market interest rate exceeds the coupon rate of the bond. All else constant a bond will sell at _____ when the coupon rate is _____ the yield to maturity. Depending on the circumstances a discount bond can represent a buying or selling opportunity for an investor.

The market interest rate at the time of issue is less than the stated interest rate on the bond because bond sells at a discountSee more A discount bond is the opposite of a premium bond which occurs when the market price of a bond is higher than the price for which it was originally sold. The current market rate is 9. Why a Bond Sells at a Discount.

A bond discount is the difference between the face value of a bond and the price for which it sells. Investors who hold a bond to maturity when it becomes due get back the face value or par value of the bond. Bond has a short-term life.

Effective yield is higher than the stated rate. The bond sells at a discount if its market price is below the par value. When the market interest rate is higher than a bonds coupon rate the bond sells at a price lower than its face value and the difference is called bond discount.

Equal to the true compound return on investment only if all interest payments received. If a bond sells below par its value is 1000 minus the discount. Stated rate is higher than the nominal rate.

There are several reasons why a bond sells at a discount to its face. The yield-to-maturity only equals the coupon rate when the bond sells at face value. In such a situation the yield-to-maturity is higher than the coupon.

Contract rate is above the market rateB. A discount bond is a bond that was originally sold at less than its face value. Bonds are sold at a discount when the market interest rate.

The selling value for the bond interest paid is not relevant. The bond interest is paid on the par value and we normally assume the par value is 100 or 1000. O Contract rate is above the market rate Contract rate is equal to the market rate O Contract rate is below the market rate O Bond has a short-term life O Bond pays interest only once a year.

But investors who sell a bond before it matures may get a far different amount. A bond sells at a discount when the. A bond will sell at a discount when _________.

The bond discount is the difference by which a bonds market price is lower than its face value. Its coupon rate is greater than its current yield and its current yield is less than its yield to maturity. Bond pays interest only once a year.

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