Suppose a seven-year, $1,000 bond with a 7.9% coupon rate and semiannual coupons is trading with a yield to maturity of 6.71%. a. Is this bond currently trading at a discount, at par, or at a premium? Explain. b. If the yield to maturity of the bond rises to 7.28% (APR with semiannual compounding), what price will the bond trade for?
Suppose a seven-year, $1,000 bond with a 7.9% coupon rate and semiannual coupons is trading with a yield to maturity of 6.71%. a. Is this bond currently trading at a discount, at par, or at a premium? Explain. b. If the yield to maturity of the bond rises to 7.28% (APR with semiannual compounding), what price will the bond trade for?
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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Transcribed Image Text:Suppose a seven-year, $1,000 bond with a 7.9% coupon rate and semiannual coupons is trading with a yield to
maturity of 6.71%.
a. Is this bond currently trading at a discount, at par, or at a premium? Explain.
b. If the yield to maturity of the bond rises to 7.28% (APR with semiannual compounding), what price will the bond
trade for?
a. Is this bond currently trading at a discount, at par, or at a premium? Explain. (Select the best choice below.)
A. Because the yield to maturity is less than the coupon rate, the bond is trading at a discount.
B. Because the yield to maturity is less than the coupon rate, the bond is trading at a premium.
C. Because the yield to maturity is greater than the coupon rate, the bond is trading at a premium.
D. Because the yield to maturity is greater than the coupon rate, the bond is trading at par.
b. If the yield to maturity of the bond rises to 7.28% (APR with semiannual compounding), what price will the bond
trade for?
The new price of the bond is $
(Round to the nearest cent.)
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