Suppose a seven-year, $1,000 bond with an 8.3% coupon rate and semi-annual coupons is trading with a yield to maturity of 6.64%.

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 to7.11%

(APR with semi-annual 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 greater than the coupon rate, the bond is trading at par.

C.

Because the yield to maturity is less 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 a premium.

Suppose a seven-year,

$1,000

bond with

an

8.3%

coupon rate and semi-annual coupons is trading with a yield to maturity of

6.64%.

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

7.11%

(APR with semi-annual 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 greater than the coupon rate, the bond is trading at par.

C.

Because the yield to maturity is less 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 a premium.