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Which of the following bonds is trading at a premium?
a. It is not possible to determine if these bonds are trading at a premium or a discount.
b. A 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually
c. A five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually
d. A ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually
e. A two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid monthly

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Answer:

The answer is: C) A five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually

Explanation:

When a bond trades at a premium it means that its market price is higher than the face value of the bond. For example, a bond with a face value of $10,000 trades for $10,200 ($200 premium).

In this case, the five-year bond has a coupon rate of 7.2% while its yield to maturity is 7% (= 0.2% premium).

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