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    Bond Price - YTM

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    Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. Is this bond currently trading at a discount, at par, or at a premium? Explain. If the yield to maturity of the bond rises to 7.00% (APR with semiannual compounding), what price will the bond trade for? Please show in excel.

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    Solution Preview

    The answers are in attached Excel File.

    Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%.  Is this bond currently trading at a discount, at par, or at a premium?  Explain.  If the yield to maturity of the bond rises to 7.00% (APR with semiannual compounding), what price will the bond trade for?  Please show in excel.

    Since the coupon rate @ 8% is greater than the yield to maturity (YTM) @6.75%, the bond is trading at premium.
    This is because the market return @ 6.75% is less than what a person who has bought the bond will get if the bond sells at par ($1000) that is 8%
    There will be a demand for this bond which will push the price up ...

    Solution Summary

    This solution calculates bond price for different yields, using step by step explanations and calculations.

    $2.19

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