Series 7 practice questioneasyDebt Securities — Bond Pricing — Premium and Discount
A bond trading at 103 is said to be trading at:
- AA discount
- BParity
- CA premium✓ Correct answer
- DPar
Explanation
Why C — A premium
Bond prices are quoted as a percentage of par value ($1,000). A bond trading at 103 has a market price of $1,030, which is above par value. This is called trading at a premium. Bonds trade at a premium when their coupon rate is higher than current market interest rates, making their income stream more valuable than newly issued bonds.
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