Bond premium true statement:

Bond premium true statement:

• A. The stated coupon rate is higher than the market rate
• B. The market rate is higher than coupon rate
• C. The coupon rate equals market rate
• D. The face value equals the issue price

Answer: (A)

When a bond trades at a premium, the coupon rate is higher than the going market rate for similar bonds. Investors are attracted by the larger periodic coupon payments, so they’re willing to pay more than the face value to hold the bond. The higher price raises the yield to maturity until it matches current market rates. If the market rate were higher than the coupon, the bond would trade below par (a discount). If the coupon exactly matched the market rate, the bond would trade at par, meaning its price equals its face value. A statement about the face value equaling the issue price describes issuing at par, not a premium.

When a bond trades at a premium, the coupon rate is higher than the going market rate for similar bonds. Investors are attracted by the larger periodic coupon payments, so they’re willing to pay more than the face value to hold the bond. The higher price raises the yield to maturity until it matches current market rates. If the market rate were higher than the coupon, the bond would trade below par (a discount). If the coupon exactly matched the market rate, the bond would trade at par, meaning its price equals its face value. A statement about the face value equaling the issue price describes issuing at par, not a premium.