Purchase Solution

Bond Price - YTM

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution

Solution Summary

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

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 ...

Purchase this Solution


Free BrainMass Quizzes
Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.