Question

A) Compute the price of a 6.4 percent coupon bond with 10 years left to maturity and a market interest rate of 8.0 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

B) Is this a discount or premium bond?

• discount bond

• premium bond

Answer 1

Part A:

M = $1,000, n = 10 * 2 = 20 semi-annual periods, C = 6.4% * $1000/2 = $32 (semi-annually), i = 8%/2 = 4% (semi-annually)

P = $434.89 + $456.39

P = $891.28

Part b:

Bond price is less than the par value, hence it is a DISCOUNT BOND