The return investors now require on a bond is higher than its coupon rate. How does the bond sell?

Above its face value, at a premiumCorrect answerYour answerAt exactly its face valueCorrect answerYour answerIt cannot be sold until maturityCorrect answerYour answerBelow its face value, at a discountCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

The coupons are fixed. If buyers want a higher return than they pay, buyers will only pay less for the bond.
So the price falls below the face value: a discount.

Worth noting

A premium happens the other way round, when the coupon rate beats the required return.

Concept: The required return and the price
Typical timeTypical: 90 s
Your timeYours: —

The rule this testsBonds and their terms

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The return investors now require on a bond is higher than its coupon rate. How does the bond sell?

Explanation