Question
(Bond valuation) Doisneau 22-year bonds have an annual coupon interest of 12 percent, make interest payments on a semiannual basis, and have a $1,000 par
(Bond valuation) Doisneau
22-year
bonds have an annual coupon interest of
12
percent, make interest payments on a semiannual basis, and have a
$1,000
par value. If the bonds are trading with amarket's required yield to maturity of
13
percent, are these premium or discount bonds? Explain your answer. What is the price of the bonds?
a. If the bonds are trading with a yield to maturity of
13%,
then (Select the best choice below.)
A.
there is not enough information to judge the value of the bonds.
B.the bonds should be selling at a
discount
because the bond's coupon rate is
less
than the yield to maturity of similar bonds.Your answer is correct.
C.the bonds should be selling at a
premium
because the bond's coupon rate is
greater
than the yield to maturity of similar bonds.
D.
the bonds should be selling at par because the bond's coupon rate is equal to the yield to maturity of similar bonds.
b.The price of the bonds is
$.
(Round to the nearest cent.)
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