Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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
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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
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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 

 

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