Question

An 8-year bond with a face value of $1,000 has a coupon of 4.56% and the market is pricing the bond to yield 5.37%. This is a ________ bond. Group of answer choices

par

discount

premium

zero coupon

Kurt's Steel, Inc. offers a preferred stock with an annual dividend of $3.00 per share. Investors currently require a return of 6.15% on this preferred stock. What should be the current market price of this preferred stock?

Group of answer choices

$39.75

$30.00

$48.78

$51.55

Answer 1

Whenever a bonds coupon rate is equal to the yield to maturity, the bond sells at par.

Whenever a bonds coupon rate is more than the yield to maturity, the bond sells at premium.

Whenever a bonds coupon rate is less than the yield to maturity, the bond sells at discount.

In the given case, since the coupon rate of the bond is less than the yield to maturity of the bond, hence this is a discount bond.

So, the correct answer is option of discount.

The price is computed as shown below:

= Annual dividend / rate of return

= $ 3 / 6.15%

= $ 48.78 Approximately

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