Question

Find the current price of a bond with the following characteristics: (a) NPER—20, (b) Coupon Rate--$60, and (c) Market Rate of Interest—5%.Is the bond in question (1) selling at: (a) Par Value, (b) a Discount to Par, or (c) a Premium to Par? The bond is selling at premium to par because the coupon rate ($60 / $1,000 = 6%) is higher than the market rate. To determine whether a bond will be issued at par, discount or premium without computation, just compare the coupon rate and the market rate (or yield to maturity):
1) if the coupon rate and the market rate are equal, the bond will be issued at par.
2) if the coupon rate is higher than the market rate , the bond will be issued at premium.
3) if the coupon rate is less than the market rate , the bond will be issued at discount.



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  • CreatedSeptember 19, 2013
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