Question content area top

Part $1$

Explain why the yield of a bond that trades at a discount exceeds the$$ bond's coupon rate.

Question content area bottom

Part $1$

$($Select the best choice$$ below.$)$

A$.$

Because the value of the bond is$$ discounted, the return on the bond is reduced and the yield exceeds the coupon.

B$.$

The$$ bond's coupon yield is irrelevant. It trades at a discount because investors avoid these bonds.

C$.$

The bond is trading at a discount because investors$$ don't like the bond.

D$.$

The bond can be purchased for a$$ discount, which gives it an$$ "extra return";$$ hence, the yield exceeds the coupon.