Which of the following bonds is trading at a premium? Question 47 options: 1) a

Question

Which of the following bonds is trading at a premium?

Question 47 options:

1) a five-year bond with a $2000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually 2) a ten-year bond with a $4000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually 3) a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually 4) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid monthly

Explanation / Answer

Option (1) is trading at premium

Face value

Option (1) is trading at premium

1 2 3 4 Present Value of Semi Annual Coupens =144/0.07*(1-1/1.035)10 =236/0.06*(1-1/1.03)20 =780/0.07*(1-1/1.04)30 =2600/0.07*(1-1/1.004)36 598.80 1755.54 6743.89 6693.18 Present Value of Principal 2000/(1.035)10 4000/(1.03)20 10000/(1.04)30 50000/(1.004)36 1417.84 2214.70 3083.19 43306.82 2016.63 3970.25 9827.08 50000.00 Coupen Rate 7.20% 5.90% 7.80% 5.20% YTM 7% 6% 8% 5.20% Period 5 10 15 2 Coupen Amount 144 236 780 2600

Face value

2000 4000 10000 50000         

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