Suppose a seven-year, $1,000 bond with a

10.35%

coupon rate and semiannual coupons is trading with a yield to maturity of

8.24%.

a. Is this bond currently trading at a discount, at par, or at a premuim? Explain.

b. If the yield to maturity of the bond rises to

8.55%

(APR with semiannual compounding), at what price will the bond trade?

Question content area bottom

Part 1

a. Is this bond currently trading at a discount, at par, or at a premuim? Explain.

The bond is currently trading...(Select the best choice below.)

A.

... at a discount because the coupon rate is greater than the yield to maturity

B.

... at par because the coupon rate is equal to the yield to maturity

C.

... at a premium because the yield to maturity is greater than the coupon rate.

D.

... at a premium because the coupon rate is greater than the yield to maturity