Suppose aseven-year, $1,000 bond with a 7.99% coupon rate and semiannual coupons is trading with a yield to maturity of 5.96%.

1. Is this bond currently trading at adiscount, atpar, or at apremuim? Explain.

2. If the yield to maturity of the bond rises to 6.14% (APR with semiannualcompounding), at what price will the bondtrade?

The bond is currently trading...

Question#1:

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

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

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

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