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    Calculating fair value of bond in the given cases

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    Benson Incorporated has bonds with the following features: Par value of $1,000, maturity of 12 years, and a coupon rate of 8%. The yield to maturity is 6%. Please determine if the bond sells for a premium, par, or discount and explain your answer. Calculate the value of the bond if interest is paid on an annual basis versus a semi-annual basis. Show your work.

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    Solution Preview

    In the given case yield to maturity (6%) is lower than coupon rate (8%), bond will sell at a premium.

    Case 1, Coupon is paid on annual basis
    C=Coupon = 1000*8%=$80
    r= required rate of ...

    Solution Summary

    Solution describes the steps to calculate fair value of bond in the given cases.