A corporate bond with a 6% coupon rate trading on a 7% basis is trading at?

When evaluating the relationship between a bond's coupon rate and its market yield, it’s important to understand the impact on its price. In this case, the corporate bond has a fixed coupon rate of 6%, which means it pays out 6% of its face value annually.

When a bond is said to be trading on a 7% basis, it indicates that the current market yield (the yield investors are currently seeking for a comparable bond) is at 7%, which is higher than the bond's coupon rate of 6%. This scenario leads to a situation where the bond is less attractive to investors compared to new issues offering a higher yield.

As a result, to entice buyers, the bond must be sold at a price lower than its par value, which is known as trading at a discount. A discount allows the yield to be adjusted to meet the market requirement. Thus, when a bond's coupon rate is lower than the market yield, it results in the bond trading at a discount to its face value.

Consequently, the correct answer reflects this fundamental principle of bond pricing, where the price adjustment occurs to align the bond’s yield with the market.