Which of the following would explain why the yield to maturity is lower than the coupon?

ST has in issue unquoted 7% debentures which were issuedat par and are redeemable in 1 year’s time. These debentures cannot be traded. The yield to maturity on these debentures has been calculated at 5%.

Which of the following would explain why the yield to maturity is lower than the coupon?
A . ST will benefit from the tax relief on the interest payment.
B . The debentures will be redeemed at a discount to their par value.
C . The debentures will be redeemed at their par value.
D . The market value of the debentures must be higher than their par value.

Answer: B