Question

Doisneau 25​-year bonds have an annual coupon interest of 9 ​percent, make interest payments on a semiannual​ basis, and have a ​$1 comma 000 par value. If the bonds are trading with a​ market's required yield to maturity of 13 ​percent, are these premium or discount​ bonds? Explain your answer. What is the price of the​ bonds?

a. If the bonds are trading with a yield to maturity of 13​%, then ​ (Select the best choice​ below.)

   A. there is not enough information to judge the value of the bonds.

   B. the bonds should be selling at par because the​ bond's coupon rate is equal to the yield to maturity of similar bo   C. the bonds should be selling at a premium because the​ bond's coupon rate is greater than the yield to maturity of similar bonds.

D. the bonds should be selling at a discount because the​ bond's coupon rate is less than the yield to maturity of similar bonds. Your answer is correct.

b.The price of the bonds is ​$ ​ (Round to the nearest​ cent.)

Answer 1

a

b

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =25x2

Bond Price =∑ [(9*1000/200)/(1 + 13/200)^k]     +   1000/(1 + 13/200)^25x2

k=1

Bond Price = 705.51