Question
You are considering investing in a corporate bond for Firm X. The bond has a face value of $1,000, has nine years remaining until maturity
You are considering investing in a corporate bond for Firm X. The bond has a face value of $1,000, has nine years remaining until maturity and pays annual coupons with a coupon rate of 6%. You look at their bond rating and see they are rated AA and find that similar bonds rated AA have a yield to maturity of 4.4%. What price should you expect to pay today for this bond? If you held it for exactly one year, what price would you expect to sell it for if market rates stay the same? What would your return be over this one year period? Briefly explain why the bond sells for a premium or discount.
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