medium · Debt Capital Markets pricing-yields-curve
An investor purchases a corporate bond at a price of $1,040.
If the bond has a face value of $1,000, what is the primary reason the yield to maturity (YTM) will be lower than the coupon rate?
- The market-required yield must rise even further to align with the bond's higher purchase price.
- The issuer is contractually obligated to reduce the periodic coupon payments once the bond trades above par.
- The investor faces a capital loss over time as the bond price converges to par at maturity.
- The bond's par value steadily rises across the holding period to offset the premium paid.
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