Question

    A bond with a face value of ₹1,000, 5% annual coupon,

    and maturity of 5 years is sold at ₹950. What does this price suggest?
    A Coupon rate equals market rate Correct Answer Incorrect Answer
    B Bond is undervalued Correct Answer Incorrect Answer
    C Bond yields more than 5% Correct Answer Incorrect Answer
    D Bond has call protection Correct Answer Incorrect Answer

    Solution

    When bond price < face value, yield to maturity > coupon rate.

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