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

4.96%

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

2.05%.

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

2.94%

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

B.

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

Your answer is correct.

C.

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

D.

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

Part 2

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

2.94%

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

The bond will trade for

$enter your response here.

(Round to two decimal places.)

PLEASE JUST ANSWER PART B.