Answer: above par

## Explanation This question involves understanding the relationship between bond purchase price, yield to maturity, and realized horizon yield. **Key Information:** - Bond purchased at issuance for 98 (discount to par) - 5-year bond held for 2 years - Coupon payments reinvested at original YTM - Realized horizon yield = Original YTM **Analysis:** 1. **Initial Purchase at Discount:** When a bond is purchased at a discount (98 < 100), the YTM is higher than the coupon rate. 2. **Realized Horizon Yield Calculation:** The realized horizon yield considers: - Coupon payments received - Reinvestment income from coupons - Capital gain/loss from selling price 3. **Mathematical Relationship:** For the realized horizon yield to equal the original YTM when the bond was purchased at a discount, the investor must have sold the bond at a **price above par**. **Reasoning:** - If the bond was purchased at 98 (discount), there's an expected capital appreciation as the bond approaches maturity. - To achieve the same YTM as originally calculated (which included this capital appreciation), when selling after only 2 years (with 3 years remaining), the bond must be sold at a premium to compensate for the shorter holding period. - The bond's price would have risen from 98 toward par (100) as it approached maturity, but to achieve the original YTM with only 2 years of holding, it needs to be sold above par. **Alternative Perspective:** If the bond was sold at par or below par, the realized horizon yield would be lower than the original YTM because: - Selling at par: Would give some capital gain (from 98 to 100) but not enough to match original YTM over shorter period - Selling below par: Would result in capital loss, reducing yield below original YTM Therefore, the bond must have been sold **above par** to achieve the same yield as the original YTM. **Answer: C (above par)**

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