Which of the following bonds is trading at a premium? a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid annually a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually a five-year bond with a $5,000 face value whose yield to maturity is 5.0% and coupon rate is 5.2% APR paid semiannually a ten-year bond with a $1,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually a seven-year zero coupon bond whose yield to maturity is 9.0% and the face value is $5,000 Review Video Example 6.6a
Which of the following bonds is trading at a premium? a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid annually a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually a five-year bond with a $5,000 face value whose yield to maturity is 5.0% and coupon rate is 5.2% APR paid semiannually a ten-year bond with a $1,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually a seven-year zero coupon bond whose yield to maturity is 9.0% and the face value is $5,000 Review Video Example 6.6a
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
Related questions
Question
Transcribed Image Text:Which of the following bonds is trading at a premium?
a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and
coupon rate is 5.2% APR paid annually
a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and
coupon rate is 7.8% APR paid semiannually
a five-year bond with a $5,000 face value whose yield to maturity is 5.0% and
coupon rate is 5.2% APR paid semiannually
a ten-year bond with a $1,000 face value whose yield to maturity is 6.0% and
coupon rate is 5.9% APR paid semiannually
a seven-year zero coupon bond whose yield to maturity is 9.0% and the face
value is $5,000
Review Video Example 6.6a
Expert Solution
Step 1
a) 1) If coupon rate is greater than Yield to maturity, then bond is trading at Premium
2) If coupon rate is less than Yield to maturity, then bond is trading at discount
3) if coupon rate is equal to yield to maturity, then bond is trading at par
b) Zero coupon Bond is bond which is issued at discount and pays only maturity value at the end of maturity of the bond. It doesn't pay I,e coupon (interest) on the bond. So it always trades at discount
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education