During January 2020, Mr. Smiths daughter gets engaged. Mr. Smith would like to fund the wedding. To raise the cash, he considers selling some of his Disney bonds. Over the past few years, interest rates have risen to 7% for 3-year corporate bonds and 8.5% for 4-year corporate bonds of the same quality as the Disney bonds. they issue a $2 billion bond offering, with each bond having a face value of $1000. The Series A bonds ($1.2 million of the offering) have a coupon rate of 3% (paid semiannually), and a maturity date of 02/01/23. The Series B bonds ($800 million) have a coupon rate of 4% (paid semiannually), and a maturity date of 02/01/28. He has 50 A bonds and 100 B bonds.

1. If Mr. Smith were to sell his Series A bonds, would he need to sell them at a discount or at a premium?

A. Discount

B. Premium

C. Neither, he can probably sell them for $1000 apiece.

2. If Mr. Smith were to sell his Series B bonds, would he need to sell them at a discount or at a premium?

A. Discount

B. Premium

C. Neither, he can probably sell them for $1000 apiece.