Question

Risk premiums  In January 2016​, ​Anheuser-Busch issued an outstanding bond that pays a 3.2​% coupon​ rate, matures in January 2023​, and has a yield to maturity of 2.72​%. In January 2017​, Santander Holdings issued an outstanding bond that pays a 3.576​% coupon​ rate, matures in January 2023​, and has a yield to maturity of 3.346​%. a. Does the​ Anheuser-Busch bond sell at a​ premium, at​ par, or at a​ discount? How do you​ know? What about the Santander​ bond? b. Which bond would you guess has a higher​ rating? Why? c. Can you draw any conclusion about the shape of the yield​ curve, either now or when these bonds were first​ issued, from the information given in the​ problem? Why or why​ not?

Answer 1

a. Does the​ Anheuser-Busch bond sell at a​ premium, at​ par, or at a​ discount? How do you​ know? What about the Santander​ bond?
A bond sells for premium when coupon rate is more than yield to maturity and sells for discount when coupon rate is less than yield to maturity
Anheuser-Busch bond sells at premium as coupon rate is more than yield to maturity
Santander bond sells at premium as coupon rate is more than yield to maturity

b. Which bond would you guess has a higher​ rating? Why?
Higher yield means higher chances of default and thus lower credit rating and lower yield means lowers chances of default and thus higher credit rating
Anheuser-Busch has higher credit rating because it has lower yield to maturity.

c. Can you draw any conclusion about the shape of the yield​ curve, either now or when these bonds were first​ issued, from the information given in the​ problem? Why or why​ not?
No as both bonds are of different credit rating and are not Treasury bonds