Question

A bond with an annual coupon of $100 originally sold at par for $1,000. The current...

A bond with an annual coupon of $100 originally sold at par for $1,000. The current yield to maturity on this
bond is 9%. This bond would sell at
A. A discount to par.
B. At par.
C. At a premium to par.
D. Face value.
E. Not enough information.

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Homework Answers

Answer #1

c ) The Bond would trade at a premium to par .

Coupon Interest = $100

Current Yeild = Coupon Amount / Price

Mathematical Explanation : Where Current Yeild is < than the Coupon Amount , where as Coupon Amount is same in both calculations , then Price will be higher in order to Pull down the current yeild .

Financial Explanation : As coupon amount is fixed @ $100 and Current Yeild is 9% , in That case refer calculations below :

9% = $100 / Price

Therefore , Price ( ) = %1111.11 , which is at premium to its par at $1000.

The premium is $111.11 or 11.11%

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