liza Mok spots two bonds in the market in which she is interested. The first bond is a 20-year bond issued by Orange Ltd two years ago with a coupon rate of 4.9%. The second bond is a 10-year bond issued by Pear Ltd one year ago at a coupon rate of 5.1%. Both bonds have a par value of $1,000 and make semiannual payments.

a. If the yield to maturity (YTM) on the Orange bond is 5.0%, what is the current bond price?

b. If the Pear bond currently sells for 102% of par value, what is the YTM?

c. Eliza wonders why some bonds are selling at premium over par value while other bonds sell at discount or at par. Explain.

Answer rating: 100% (QA)

aCurrent Price of the Bond issued by Orange Ltd The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face V... View the full answer