SIE Exam Question 603: Answer and Explanation

Question: 603

When a bond is selling at a premium to par, the yield to maturity (YTM) will always be __________ the bond's coupon rate. If a bond is selling at a discount to par, the YTM will always be __________ the bond's coupon rate.

• A. greater than, equal to
• B. greater than, less than
• C. less than, equal to
• D. less than, greater than

Correct Answer: D

Explanation:

When a bond is selling at a premium to par, the yield to maturity (YTM) will always be less than the bond's coupon rate. If a bond is selling at a discount to par, the YTM will always be greater than the bond's coupon rate.