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SSC Audit Tax Finance P-II QUESTION #1230
Question 1
When the market's required rate of return for a bond is much less than its coupon rate, the bond is selling at:
  • A premium✔️
  • A discount
  • Cannot be determined without more information
  • Face value
Correct Answer Explanation
When the market's required rate of return (yield) is less than the bond's coupon rate, investors are willing to pay more than face value for the bond because it offers above-market interest payments. The bond therefore sells at a premium (price > face value). Conversely, when yield > coupon rate, the bond sells at a discount.