Question

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

Bond	A	B	C	D
Price	$977.09	$1,039.62	$1,145.79	$1,000.00

For each​ bond, state whether it trades at a​ discount, at​ par, or at a premium.

Answer 1

Ans:

Bond Trades at Discount: When bonds are issued at lower price than the face value is called issued at discount. It offers a coupon rate that is lower than prevailing interest rates.

Bond Trades at Par: When bonds are issued at the face value means then the issue price is equal to face value then it is called issued at par.

Bond Trades at Premium: When bonds are issued at higher price than the face value is called issued at premium. It offers a coupon rate that is lower than prevailing interest rates.

Bond A: It trades at a discount because current price $977.09 is lower than face value

Bond B: It trades at a premium because current price $1039.62 is higher than face value

Bond C: It trades at a premium because current price $1145.79 is higher than face value

Bond D: It trades at a par because current price is equal to face value