Aspens is preparing a bond offering with a coupon rate of 5.5 percent. The bonds

Question

Aspens is preparing a bond offering with a coupon rate of 5.5 percent. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Which one of the following statements is correct?

The bonds will initially sell at a discount.

The bonds will pay 19 interest payments and one principal payment.

At maturity, the bonds will pay a final payment of $1,055.

The bonds will pay ten equal coupon payments.

At issuance, the bond’s yield to maturity is 5.5 percent.

Explanation / Answer

Answer is the bond’s yield to maturity is 5.5 percent.

Explnation:A bond's coupon rate is equal to its yield to maturity if its purchase price is equal to its par value.

For example , Par value of bond is $ 1000, Terminal value =$ 1000, coupon rate=5.5%

YTM formula ={Interest +Terminal value -Face value)/No of years to maturity}/Initial investment

={1000*5.5% +(1000-1000)/10 }/1000

=(1000*5.5%+0)/1000

=1000*5.5%/1000

YTM =5.5%

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