A Disney corporation bond with a $1000 par value can be purchased at a premium today for $1092. Use the information that follows to answer the question. A Disney Corporation Bond with a $1,000 par value can be purchased at a premiumtoday for $1,092. The original coupon was 11%, so the bond pays $110 interestonce every year. There are eight years before maturity and Disney will pay $110each of those eight years and it will pay back the $1,000 par at the end of the eighthyear. Why might the bond be selling for more than par (at a "Premium") given thatDisney will still pay $110 interest each year and $1,000 principal at the end of eightyears?O a) The bond can be converted into common stockb) Interest rates have increased since the bond was issuedc) Interest rates have decreased since the bond was issuedd) Disney's stock value has declined because of a business cycle downturn

A bond is an acknowledgment of debt. Regular interest is to be paid on bonds. It is a regular source…

Answered: purchased at a premi

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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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Question

A Disney corporation bond with a $1000 par value can be purchased at a premium today for $1092. Use the information that follows to answer the question.

A Disney Corporation Bond with a $1,000 par value can be purchased at a premium
today for $1,092. The original coupon was 11%, so the bond pays $110 interest
once every year. There are eight years before maturity and Disney will pay $110
each of those eight years and it will pay back the $1,000 par at the end of the eighth
year. Why might the bond be selling for more than par (at a "Premium") given that
Disney will still pay $110 interest each year and $1,000 principal at the end of eight
years?
O a) The bond can be converted into common stock
b) Interest rates have increased since the bond was issued
c) Interest rates have decreased since the bond was issued
d) Disney's stock value has declined because of a business cycle downturn

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