Question

Bond prices and yields Assume that the Financial Management​ Corporation's ​$1 comma 000​-par-value bond has a 5.500 % ​coupon, matures on May​ 15, 2027, has a current price quote of 110.448 and a yield to maturity​ (YTM) of 4.242 %. Given this​ information, answer the following​ questions:

a.What was the dollar price of the​ bond?

b.What is the ​bond's current​ yield?

c.Is the bond selling at​ par, at a​ discount, or at a​ premium? ​ Why?

d.Compare the​ bond's current yield calculated in part b to its YTM and explain why they differ.

Answer 1

bond face value=1000

1) current price=face value * quote rate

=1000*110.448%=1104.48

2) current yield =coupon value / current price=

=1000*5.5%/1104.48=4.98%

3) The selling price is more than the face value , which bond is selling at premium

4)the relation between ytm and current price is opposite direction. if ytm is more than the current yield than the current price of bond will be less than face vaue or vice versa. in present case yield to maturity is less thatn current yield then present vaalue will be more than the face value.

please ask if any query.