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Suppose aseven-year, $1,000 bond with a 9.64 % 9.64% coupon rate and semiannual coupons is trading with a yield to maturity of 8.50 % 8.50%.

Suppose aseven-year, $1,000 bond with a 9.64 %

9.64% coupon rate and semiannual coupons is trading with a yield to maturity of 8.50 %

8.50%.

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

b. If the yield to maturity of the bond rises to 8.78 %

8.78% (APR with semiannualcompounding), at what price will the bondtrade?

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