Question

​(Related to Checkpoint​ 9.3)  ​(Bond valuation) Doisneau 15​-year bonds have an annual coupon interest of 11 ​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 15 ​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 15​%, then ​ (Select the best choice​ below.)

 The price of the bonds is

​ (Round to the nearest​ cent.)

Answer 1

Information provided:

Par value= future value= $1,000

Time= 15 years*2= 30 semi-annual periods

Coupon rate= 11%/2= 5.50%

Coupon payment= 0.055*1,000= $55

Yield to maturity= 15%/2= 7.50%

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 30

PMT= 55

I/Y= 7.50

Press the CPT key and PV to compute the present value.

The value obtained is 763.79.

Therefore, the price of the bond is $763.79    $764.

It is a discount bond since it is trading for less than its par value.

In case of any query, kindly comment on the solution.