Question

# 7) The prices of several bonds with face values of \$1,000 are summarized in the following​...

7)

The prices of several bonds with face values of \$1,000 are summarized in the following​ table:

 Bond A B C D Price \$905.72 \$057.48 \$1,179.66​ \$1,000.00

For each​ bond, provide an answer for whether it trades at a​ discount, at​ par, or at a premium. Bond A trades at​ (a).----------------?

5)

Suppose a 10​-year, \$1,000 bond with a 12% coupon rate and semiannual coupons are trading for a price of \$1,014.76.

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

b. If the​ bond's yield to maturity changes to 10%

​APR, what will the​ bond's price​ be?

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

The YTM is ---------​%. (Round to two decimal​ places.)

8)

Suppose a​ seven-year, \$1,000 bond with a 10.96% coupon rate and semiannual coupons is trading with a yield to maturity of 8.00%.

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

b. If the yield to maturity of the bond rises to 8.73%

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

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

The bond is currently trading...  ​(Select the best choice​ below.)

A.... at a premium because the coupon rate is greater than the yield to maturity

B.... at a discount because the coupon rate is greater than the yield to maturity

C.... at a premium because the yield to maturity is greater than the coupon rate.

D.... at par because the coupon rate is equal to the yield to maturity

7.

When a bond is trading below the face value, it is said to be discount. When a bond is trading above the face value, it is said to be trading at premium. When a bond is trading at same as face value, it is said to be trading at par.

So, Bond A & B are trading at discount, while Bond C is trading at premium, and Bond D is trading at par.

5.

a.

From the given information,

Bond price, PV = 1014.76

Coupon, PMT = 0.12*1000/2 = 60

Term, N = 10*2 = 20

Face value, FV = 1000

YTM, R = ?
Using excel function, R = Rate(N,PMT,PV,FV)

Rate(20,-60,1014.76,-1000) = 0.0587 = 5.87% semi annually

YTM = 5.87%*2 = 11.75% Annually

b.

If YTM = 10%

R = 10%/2 = 5% semi annually

PV = PV(R,N,PMT,PV)

PV(0.05,20,-60,-1000) = 1124.62

Bond price = \$1124.62

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