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If a bond sells at a high premium, then which of the following relationships hold true? (P0 represents the price of a bond and YTM is the bond's yield to maturity.)Select one:(A) P0 < par and YTM > the coupon rate.(B) P0 > par and YTM > the coupon rate.(C) P0 > par and YTM < the coupon rate.(D) P0 < par and YTM < the coupon rate.

Respuesta :

Answer:

(C) P0> par and YTM< the coupon rate

Explanation:

In case of a bond wherein coupon rate of interest payments is higher than it's discounting rate or the yield to maturity (ytm), such bonds are priced at a premium.

In such cases, present value of the bond which is here denoted by P0 is higher than it's face value.

Value of a bond is the sum total of it's present value of it's future stream of coupon payments as well as it's redemption value, both discounted at the rate of it's yield to maturity(ytm).

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