Question:

Supposed a 7-year bond with an 8 per cent coupon rate paid semi-annually and the required rate of return is 6 per cent. A par value is RM1,000. Based on the information given, answer the following questions.

1. Is the bond is currently trading at a discount, at par or at premium? Explain.
2. If the required rate of return rises to 10 per cent, with semi-annual compounding, what is the price will the bond trade for? Explain the relationship between interest rate and bond price.
3. If the bond is trading for a price of RM1,034.74, what is the yield-to-maturity (YTM)?
4. Recalculate (b) with 10 per cent annual compounding. Explain the different answers between (b) and (.