Question

A corporate bond has a $1,000 face value and a 5 percent coupon rate (annual payments)...

A corporate bond has a $1,000 face value and a 5 percent coupon rate (annual payments) maturing in 3 years.
a. If the yield to maturity is 7%, what is the bond price?

b. An investor believes an appropriate rate to discount the future cash flow of the bond should be 6%, should the investor buy or sell the bond? Discuss the reason(s).
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Answer #1

a)

b)

Bond should be purchased as required rate is less than the yield to maturity.

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