If your client purchased a U.S. government bond with a YTM of 4%, and a coupon of 5%. Later he sells the bond at a price producing a YTM of 6%. This indicates that when your client originally purchased the bond it was trading at a:
A Discount but at the time of sale it was trading at a premium
B Premium but at the time of sale it was trading at a discount
C Premium and it was still trading at a premium at the time of sale
D Discount and it was still trading at a discount at the time of sale
I chose A and I was wrong. I thought at purchased with a YTM 4% reference to the coupon at 5%, that’s a discounted bond. Then it sold at 6% which is higher than the coupon, I thought that is premium.
Somehow the answer is B. I don’t get this. Am I missing something here? Please help.