Situation

Consider a bond with a par value of $$1,000,$ pays $$50$ at the end of each year in coupon payments and has four $(4)$ years remaining until maturity.

Assume that, according to the market, the prevailing annualized yield in other bonds with similar characteristics is based on:

Real interest rate $=2\mathrm{.}5\%$

Inflation prime $=3\%$

Default prime $=2\%$

Maturity prime $=0\mathrm{.}5\%$

Liquidity prime $=1\%$

Exchange rate prime $=0\%($cash payments are denominated in U$.$S$.$ dollars$)$

Requirements

Calculate the coupon rate. Show the formulas, do the math step by step until the final result, and indicate the units of measurement

Calculate the discount rate. Show the formulas, do the math step by step until the final result, and indicate the units of measurement

Calculate the appropriate price for the bond. Show the formulas, do the math step by step until the final result, and indicate the units of measurement

Express the value of the bond in percentage terms of the face value. Show the formulas, do the math step by step until the final result, and indicate the units of measurement

Is the bond trading at par value, discount, or premium? Explain.