Suppose a seven-year, $1,000 bond with a 8.58% coupon rate and semiannual coupons is trading with a yield to maturity of 7.09%.

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 7.40% (APR with semiannual compounding), at what price will the bond trade?

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

C.

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

D.

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