Assertion (A): A bond with a 9% coupon sells above its face value when buyers require only 7%.
Reason (R): Its coupons pay more than buyers require, so they will pay a premium to get them.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Discounting the coupons and the face value at 7% gives more than the face value, so A is true.
R gives the reason, so R explains A.

Concept: When a bond sells at a premium
Typical timeTypical: 90 s
Your timeYours: —

The rule this testsValuing a bond

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Assertion (A): A bond with a 9% coupon sells above its face value when buyers require only 7%.Reason (R): Its coupons pay more than buyers require, so they will pay a premium to get them.

Explanation

Assertion (A): A bond with a 9% coupon sells above its face value when buyers require only 7%.
Reason (R): Its coupons pay more than buyers require, so they will pay a premium to get them.