Question

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

​

Answer 1

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