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One bond has an 8% coupon and a 10% current yield, the other has a 10% coupon and an 8% current yield. Which bond is cheaper

Sagot :

Parrainidn

Answer: The bond with the 8% coupon and a 10% current yield.

Explanation:

When a bond has a coupon rate that it less than the yield, it is said to be a discount bond because it will be trading at a price that is less than its par value. The first bond will therefore be trading at a price lower than its par value.

The second bond however, is a premium bond. It will be trading at a price that is higher than its par value because that is what bonds so when their coupon rate is higher than their yield.

The first bond will therefore b cheaper because:

First Bond < Par < Second bond

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