Question

Doisneau 16​-year bonds have an annual coupon interest of 9 ​percent, make interest payments on a semiannual​ basis, and have a ​$1,000 par value. If the bonds are trading with a​ market's required yield to maturity of 17 ​percent, are these premium or discount​ bonds?

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

Answer 1

Duration = 16 years

Semi annual basis

Face Value = 1000

Semi annual coupon amount = 0.09 *1000/2= 45

Semi-annual YTM = 8.5%

Price of bond = Present Value of semi annual coupon amount and face value discounted at semi annual YTM

Number of payments = 16 *2 = 32

Price of bond = 45/(1+0.085)^1 +45/(1+0.085)^2 +45/(1+0.085)^3 +45/(1+0.085)^4 +...........45/(1+0.085)^32 + 1000/(1+0.085)^32

Price of bond = $564 Answer

Since the price of the bond is lower than the face value it is a discount bond.