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      Question

      When the coupon of a bond is less than the market risk

      free interest rate, it will trade at
      A Par Correct Answer Incorrect Answer
      B Discount Correct Answer Incorrect Answer
      C Premium Correct Answer Incorrect Answer
      D Par or discount Correct Answer Incorrect Answer
      E Par or premium Correct Answer Incorrect Answer

      Solution

      When a bond has a YTM > than its coupon rate, it sells at a discount from its face value. When a bond has a YTM = to the coupon rate, the market price equals the face value. When a bond has a YTM < the coupon rate, the bond sells at a premium over face value.

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