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)