Suppose a seven-year,

$1,000

bond with

a

7.7%

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

6.49%.

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

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

7.24%

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

Question content area bottom

Part 1

a. Is this bond currently trading at a discount, at par, or at a premium? Explain.(Select the best choice below.)

A.

Because the yield to maturity is less than the coupon rate, the bond is trading at a discount.

B.

Because the yield to maturity is less than the coupon rate, the bond is trading at a premium.

C.

Because the yield to maturity is greater than the coupon rate, the bond is trading at a premium.

D.

Because the yield to maturity is greater than the coupon rate, the bond is trading at par.