SIE practice questioneasyBond Price — Premium vs Discount
A bond with a coupon rate of 5% is trading at 103. This bond is trading at:
- AA premium because its price is above par✓ Correct answer
- BA discount because its price is below par
- CCannot be determined without knowing the yield to maturity
- DPar value
Explanation
Why A — A premium because its price is above par
A bond quoted at 103 is trading at 103% of par value ($1,030 for a $1,000 par bond), which is above par — a premium. Bonds trade at a premium when the coupon rate exceeds the current market yield. A bond at a discount would be quoted below 100 (e.g., 97). A bond at par is quoted at exactly 100.
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