Question
A bond with an unknown face value and a coupon rate of 10% (paid annually) matures in 10 years from now. The required return (YTM)
A bond with an unknown face value and a coupon rate of 10% (paid annually) matures in 10 years from now. The required return (YTM) is 5%. Show your work!
Is the bond sold at premium or at discount? Explain!
If the face value of the bond is $1000, what is the current market price of the bond?
What is the current yield of the bond in part ii)?
Suppose, interest rates and the required return for the bond in part ii) change so that the market price of this bond is now $980. What is the new required return/yield to maturity of this bond? Did interest rates go up or down?
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