Question-36: When you can say that price of the bond should be equal to par value?

Answer: When the required yield and coupon is same, then price of the bond should be equal to par value of the bond. (Applicable only on option free bonds)

Question-37: What do you mean by that bond is sold on discount?

Answer: Suppose yield on a bond increases above coupon rate at any point, so bond price has to adjust. To do that bond price would go below its par value. So whenever bond is sold below par value it is known as bond is available at discount.

Question-38: What happen when coupon on the bond is less than the required yield?

Answer: In this case price has to go below, because when yield increases the bond price reduces. So we can say bond should be priced below par value.

Question-39: What do you mean by bond is being sold at premium?

Answer: Suppose your required yield is less than the coupon rate on the bond. Then in this case bond price would be more than par value. It means bond is giving much more yield in reality. Hence, bond price would be adjusted upward and this is called bond is selling at premium. Because its price is more than par value.

Question-40: Why do you see bond price is higher than par value?

Answer: Because, bond coupon rate looks higher than required yield by investor.