Which $1,000 Face Value Bond below will trade at a premium to its Face Value? Bond Bond A Bond B Bond C Coupon (paid annually) 10% 12% 9% Yield To Maturity 8% 14% 9% Maturity 5-years 5-years 5-years
Which $1,000 Face Value Bond below will trade at a premium to its Face Value? Bond Bond A Bond B Bond C Coupon (paid annually) 10% 12% 9% Yield To Maturity 8% 14% 9% Maturity 5-years 5-years 5-years
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:### Bond Pricing Question
**Question:**
Which $1,000 Face Value Bond below will trade at a *premium* to its Face Value?
#### Bond Details
| Bond | Coupon (paid annually) | Yield To Maturity | Maturity |
|--------|------------------------|-------------------|-----------|
| Bond A | 10% | 8% | 5 - years |
| Bond B | 12% | 14% | 5 - years |
| Bond C | 9% | 9% | 5 - years |
**Options:**
- Bond C
- None of the bonds
- Bond B
- Bond A
#### Explanation:
A bond will trade at a premium when its coupon rate is higher than its yield to maturity. Here:
- **Bond A**: Coupon rate (10%) > Yield to maturity (8%)
- **Bond B**: Coupon rate (12%) < Yield to maturity (14%)
- **Bond C**: Coupon rate (9%) = Yield to maturity (9%)
Thus, Bond A will trade at a premium.
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