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Consider a five-year, default-free bond with annual coupons of 5%

Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1000. a.

Question:

Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1000.

a. Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain.

b. What is the yield to maturity on this bond?

c. If the yield to maturity on this bond increased to 5.2%, what would the new pricebe?

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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Maturity (years) Zero-coupon YTM 4.00% 4.30% 4.50% 4.70% 4.80%

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a The bond is trading at a premium because its yield to maturity is a weighted average of the yi...View the full answer

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Corporate Finance

ISBN: 978-0133097894

3rd edition

Authors: Jonathan Berk and Peter DeMarzo

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Question Posted: Aug 06, 2014 07:17 AM

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