Answer: above par

## Explanation This question tests understanding of bond horizon yield and the relationship between purchase price, sale price, and yield to maturity. **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. **Purchase at Discount:** When a bond is purchased at a discount (98 < 100), the YTM is higher than the coupon rate because the investor receives both coupon payments and capital appreciation as the bond approaches maturity. 2. **Horizon Yield Concept:** The realized horizon yield depends on: - Coupon payments received - Reinvestment income from coupons - Capital gain/loss from sale 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 sell the bond at a price **above par** to compensate for the fact that they didn't hold the bond to maturity to realize the full capital appreciation. 4. **Intuition:** When you buy a bond at a discount, part of your total return comes from the bond's price rising to par at maturity. If you sell before maturity, you need to sell at a premium to par to capture enough capital gain to maintain the same yield. **Example Calculation (Illustrative):** If a 5-year bond with 5% coupon is purchased at 98 (YTM ≈ 5.47%), and held for 2 years: - If sold at par: horizon yield would be lower than original YTM - If sold above par: horizon yield could equal original YTM **Therefore, the correct answer is C: above par.**

Author: LeetQuiz .