When the coupon rate of a bond is equal to its yield to maturity, the bond will trade:Can't SayDiscountAt ParPremium

Break Down the Problem

1. Identify the relationship between the coupon rate and yield to maturity (YTM).
2. Determine the implications of this relationship on the bond's trading status.

Relevant Concepts

1. Coupon Rate: The interest rate the bond issuer agrees to pay bondholders, typically expressed as an annual percentage of the bond's face value.
2. Yield to Maturity (YTM): The total return an investor can expect to earn if the bond is held until maturity, taking into account all coupon payments and the difference between the purchase price and face value.

Analysis and Detail

1. When the coupon rate of a bond is equal to its yield to maturity, it indicates that the bond is priced at its face value. This means that the returns from the coupon payments match the return expected by investors in the current market, thus reflections of market equilibrium.
2. If the coupon rate were lower than the YTM, the bond would trade at a discount, because investors demand a higher rate of return relative to what the bond offers.
3. Conversely, a coupon rate higher than the YTM would lead to the bond trading at a premium, as it offers returns greater than what is currently demanded by the market.

Verify and Summarize

Since the condition states that the coupon rate equals the YTM, this confirms that the bond is trading at par or its face value.

Final Answer

At Par