Find the current price of a bond with the following characteristics: (a) NPER20, (b) Coupon Rate--$60, and

Question:

Find the current price of a bond with the following characteristics: (a) NPER—20, (b) Coupon Rate--$60, and (c) Market Rate of Interest—5%.Is the bond in question (1) selling at: (a) Par Value, (b) a Discount to Par, or (c) a Premium to Par? The bond is selling at premium to par because the coupon rate ($60 / $1,000 = 6%) is higher than the market rate. To determine whether a bond will be issued at par, discount or premium without computation, just compare the coupon rate and the market rate (or yield to maturity):

1) if the coupon rate and the market rate are equal, the bond will be issued at par.

2) if the coupon rate is higher than the market rate , the bond will be issued at premium.

3) if the coupon rate is less than the market rate , the bond will be issued at discount.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...