Question
In: Finance
Suppose a seven-year, $ 1 comma 000$1,000 bond with anan 8.3 %8.3% coupon rate and semiannual...
Suppose a seven-year,
$ 1 comma 000$1,000
bond with
anan
8.3 %8.3%
coupon rate and semiannual coupons is trading with a yield to maturity of
6.63 %6.63%.
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
7.45 %7.45%
(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.)
A.
Because the yield to maturity is greater than the coupon rate, the bond is trading at a premium.
B.
Because the yield to maturity is less than the coupon rate, the bond is trading at a premium.
Your answer is correct.
C.
Because the yield to maturity is less than the coupon rate, the bond is trading at a discount.
D.
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
7.45 %7.45%
(APR with semiannual compounding), what price will the bond trade for?The new price of the bond is
Solutions
Expert Solution
a)
Bond price is more than face value,hence it is trading at premium.
Hence the correct option is "B.Because the yield to maturity is less than the coupon rate, the bond is trading at a premium."
b)
The bond trade for $1045.72
jeff jeffy answered 1 year agoRelated Solutions
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