Suppose a seven-year, $1,000 bond with a 7.8% coupon rate and semiannual coupons is trading with...

Suppose a seven-year, $1,000 bond with a 7.8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.39%.

a. Is this bond currently trading at a discount, at par, or at a premium? Explain.

b. If the yield to maturity of the bond rises to 7.09%

(APR with semiannual compounding), what price will the bond trade for?

a. Is this bond currently trading at a discount, at par, or at a premium? Explain. (Select the best choice below.)

Because the yield to maturity is less than the coupon rate, the bond is trading at a discount.

Because the yield to maturity is greater than the coupon rate, the bond is trading at a premium.

Because the yield to maturity is less than the coupon rate, the bond is trading at a premium.

Because the yield to maturity is greater than the coupon rate, the bond is trading at par.

b. If the yield to maturity of the bond rises to

7.09%

(APR with semiannual compounding), what price will the bond trade for?The new price of the bond is

$nothing.

(Round to the nearest cent.)

Solutions

Expert Solution

for formulas and calculations, refer to the image below -

ekkarill92 answered 1 year ago

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Suppose a​ seven-year, $1,000 bond with a 7.8% coupon rate and semiannual coupons is trading with...

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