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    Question

    A bond with a face value of ₹1,000 pays an annual

    coupon of 8% and matures in 5 years. If the current market yield for similar bonds is 10%, the bond is most likely trading at:
    A Par (₹1,000) Correct Answer Incorrect Answer
    B Premium (above ₹1,000) Correct Answer Incorrect Answer
    C Discount (below ₹1,000) Correct Answer Incorrect Answer
    D Face Value Correct Answer Incorrect Answer

    Solution

    When the market yield (10%) is higher than the bond's coupon rate (8%), the bond becomes less attractive. To compensate buyers, its price falls below its face value, i.e., it trades at a discount.

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