(Related to Checkpoint 9.3) (Bond salutation) Doisneau 22-year bonds have an ann
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Question
(Related to Checkpoint 9.3) (Bond salutation) Doisneau 22-year bonds have an annual coupon interest of 15 percent. make interest payments on a semiannual basis, and have a $ 1 ,000 par value. If the bonds arc trading with a market?s required yield to maturity of 16 percent, are these premium or discount bonds? Explain your answer. What is the price of the bonds? a. If the bonds are trading with a yield to maturity of 16%, then (Select the best choice below.) A. the hoods should be selling at par because the bond?s coupon rate is equal to the yield to maturity of similar bonds. B. the bonds should be selling at a premium because the bond?s coupon rate k greater than the yield to maturity of similar bonds. C. there is not enough information to judge the value of the bonds. D. the bonds should be selling at a discount because the bond?s coupon rate is less than the yield to maturity of similar bonds. b. The price of the bonds is $[]. (Round to the nearest cent)Explanation / Answer
Semiannual Interest = 1000 * .15 *6 /12 = 75
semiannual months = 22 * 2 =44
semiannual yield = 16 / 2 = 8%
Price =(PVAF @8%,44 * Interest ) +(PVF@8%,44 *Face value)
= ( 12.07707 * 75) +(.03383 *1000)
= 905.78+ 33.83
= $ 939.61
a)correct option is "D" The bonds should be selling at a discount because bond coupon (15%) is less than Yield (16%) of similar bonds
b)Price=940
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