Question

In: Finance

A 14-year annual coupon bond was issued nine years ago at par. Since then the bond’s...

A 14-year annual coupon bond was issued nine years ago at par. Since then the bond’s yield to maturity (YTM) has increased from 8% to 11%. Which of the following statements is true about the current market price of the bond?

Group of answer choices
Insufficient information
The bond is selling at a premium
The bond is selling at a discount
The bond is selling at par

Solutions

Expert Solution

Bond Price:
It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. There is inverse relation between Bond price and YTM ( Discount rate ) and Direct relation between Cash flow ( Coupon/ maturity Value ) and bond Price.

Price of Bond = PV of CFs from it.

If coupon Rate > YTM, Bond will trade at premium.

If coupon Rate = YTM, Bond will trade at Par.

If coupon Rate < YTM, Bond will trade at Discount.

9 Years ago, it was sold at par, That means Coupon Rate and YTM are same at that time .

Hence coupon Rate is 8%

Now,

Coupon Rate = 8% ( It wont change )

YTM = 11%

As coupon Rate < YTM, Bond will trade at Discount.

Option 3 is correct

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Four years ago, Candy Land Corp. issued a bond with a 14% coupon rate, semi-annual coupon...
Four years ago, Candy Land Corp. issued a bond with a 14% coupon rate, semi-annual coupon payments, $1,000 face value, and 14-years until maturity. a) You bought this bond three years ago (right after the bond made its coupon payment) when the yield-to- maturity was 10%. How much did you pay for the bond? b) The current yield-to-maturity is 15%. If you sell the bond today (next coupon payment is in 6 months from today), after having owned it for...
Nine years ago the Templeton Company issued 25-year bonds with an 12% annual coupon rate at...
Nine years ago the Templeton Company issued 25-year bonds with an 12% annual coupon rate at their $1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. a) Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % b) Why the investor should or should not be...
- Nine years ago the Templeton Company issued 24-year bonds with a 12% annual coupon rate...
- Nine years ago the Templeton Company issued 24-year bonds with a 12% annual coupon rate at their $1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. - Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds...
Nine years ago the Templeton Company issued 25-year bonds with an 12% annual coupon rate at...
Nine years ago the Templeton Company issued 25-year bonds with an 12% annual coupon rate at their $1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why the investor should or should not be happy that...
One year ago Clark Company issued a 10-year, 14% semiannual coupon bond at its par value...
One year ago Clark Company issued a 10-year, 14% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,070, and it now sells for $1,350. What is the bond's nominal yield to maturity? Round your answer to two decimal places. % What is the bond's nominal yield to call? Round your answer to two decimal places. % Would an investor be more likely to earn the YTM...
1. Nine years ago the Templeton Company issued 28-year bonds with an 11% annual coupon rate...
1. Nine years ago the Templeton Company issued 28-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. 2. Why should or should not the investor be happy...
Six years ago the Templeton Company issued 29-year bonds with an 14% annual coupon rate at...
Six years ago the Templeton Company issued 29-year bonds with an 14% annual coupon rate at their $1,000 par value. The bonds had an 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why the investor should or should not be happy that...
A $1,000 par value bond was issued five years ago at a coupon rate of 8...
A $1,000 par value bond was issued five years ago at a coupon rate of 8 percent. It currently has 15 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer...
23 A $1,000 par value bond was issued five years ago at a coupon rate of...
23 A $1,000 par value bond was issued five years ago at a coupon rate of 12 percent. It currently has 25 years remaining to maturity. Interest rates on similar debt obligations are now 14 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your...
A $1,000 par value bond was issued five years ago at a coupon rate of 8...
A $1,000 par value bond was issued five years ago at a coupon rate of 8 percent. It currently has 10 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond using an assumption of semiannual payments. (Do not round intermediate calculations and round your answer...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT