A firm issues a bond with face value of $10,000. The coupon rate is 10% annually to be paid at the end of each year. The bond matures in 10 years. At the date of bond issue, the rate of return on the bond is 12% (YTM). a) Without any calculation, is the bond issued at premium, par or discount? b) Calculate the bond price at the issue date. c) Calculate bond price two years after the issuing date, just after the second coupon is paid. Assume the bonds' YTM do not change throughout the life of the bond.
A firm issues a bond with face value of $10,000. The coupon rate is 10% annually to be paid at the end of each year. The bond matures in 10 years. At the date of bond issue, the rate of return on the bond is 12% (YTM). a) Without any calculation, is the bond issued at premium, par or discount? b) Calculate the bond price at the issue date. c) Calculate bond price two years after the issuing date, just after the second coupon is paid. Assume the bonds' YTM do not change throughout the life of the bond.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- A firm issues a bond with face value of $10,000. The coupon rate is 10% annually to be paid at the end of each year. The bond matures in 10 years. At the date of bond issue, the
rate of return on the bond is 12% (YTM).
a) Without any calculation, is the bond issued at premium, par or discount?
b) Calculate the
c) Calculate bond price two years after the issuing date, just after the second coupon is paid. Assume the bonds' YTM do not change throughout the life of the bond.
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