Question 1

Value the following three bonds and describe whether the bonds selling at Par value, at a discount or at a premium

(a).. A four year zero coupon bond, with a par value of 200.

(b).. A four year corporate bond, with a coupon rate of 6% and a face value of 500 (coupons are paid annually).

(c)..A five year UK gilt, with a coupon rate of 4% and a face value of 100 (coupons are paid semi-annually). The yield to maturity on the zero coupon bond is 5%, on the four year corporate bond is 9% and for the five year UK gilt, it is 10%.