Question

Assume that you want to choose one out of the three bonds. All are rated BBB by S&P, with $1,000 par value and 15 years of maturity. The first has a 6% coupon rate and pays $30 every six months. The second has an 8% coupon rate and pays $40 coupon twice a year. The third has a 10% coupon and pays $100 coupon once per year. The YTM for the three bonds is 10%. Which bond(s) is(are) sold at discount? Select one: a. Bond B and C b. Bond A c. Bond B d. Bond A and B e. Bond C

Answer 1

Correct option is > d. Bond A and B

A and B both are trading at below Face value i.e. $1000

Using financial calculator BA II Plus - Input details:	A -1st	B- 2nd	C - 3rd
I/Y = Rate or yield / frequency of coupon in a year =	5.000000	5.000000	10.000000
PMT = Coupon rate x FV / frequency =	-$30.00	-$40.00	-$100.00
N = Number of years remaining x frequency =	30.00	30.00	15.00
FV = Future Value =	-$1,000.00	-$1,000.00	-$1,000.00
CPT > PV = Present value of bond =	$692.55	$846.28	$1,000.00