Which of the Following Bonds Is Trading at a Premium

question 83

Multiple Choice

Which of the following bonds is trading at a premium?

• A) 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
• B) 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
• C) 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
• D) 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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Definitions:

Common Resource

A type of good that is non-excludable and rival in consumption, such as public parks or fish in the ocean.

Common Resource

A resource that is available to all, but which can become depleted if overused, such as air, water, or public land.

Marginal Benefit

The added value or utility one experiences by consuming one more unit of a good or service.

Marginal Social Benefit

The extra advantage to the community from creating or using an additional unit of a product or service.