If a bond is purchased at a premium to par, what effect will it have on the yield to maturity?

When a bond is purchased at a premium, it means that the bond's price is above its par value. This situation affects the yield to maturity (YTM), which is the total return anticipated on a bond if it is held until it matures.

Since the bond was bought for more than its par value, the investor will receive the par value at maturity, leading to a capital loss upon redemption. Simultaneously, the investor receives coupon payments based on the bond's stated interest rate. Because the higher purchase price results in lower overall returns when compared to the par value received at maturity, the YTM will be lower than the bond's coupon rate.

Thus, the correct answer reflects that purchasing a bond at a premium will indeed result in a decrease in the yield to maturity.