Consider a default-free coupon bond with market price A. The bond matures in T

years time, has face value P, a constant coupon rate i > 0, and yield to maturity

t > 0. Coupons are paid annually, and all rates are expressed assuming annual

compounding.

i. Show if a bond sells at a discount to face value, then i < t .

ii. The current yield of a coupon bond is defined as the annual coupon

payment expressed as a fraction of the bond price. Show that the following

relationship holds for all discount bonds and provide an intuitive explanation:

yield to maturity > current yield > coupon rate.