A corporation has issued $10\%$ AA rated sinking fund debentures at par. Three

years later, similar issues are being offered in the primary market at $12\%.$

Which statement is TRUE about the outstanding $10\%$ issue?

A

The bond will trade at a discount and the current yield will be lower than

the nominal yield

The bond will trade at a discount and the current yield will be higher than

the nominal yield

The bond will trade at a premium and the current yield will be lower than

the nominal yield

The bond will trade at a premium and the current yield will be higher than

the nominal yield