Also which bond is trading at premium? The following bond list is from the busin

Question

Also which bond is trading at premium?

The following bond list is from the business section of a newspaper on January 1, 2012. Notice that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon-the coupon rate is in the column labeled Coupon The Last Price and Last Yield columns indicate each bond's price and YTM at the end of trading. EST Spread indicates the bond's spread above the relevant U.S. Treasury benchmark, given as a percentage. UST indicates which U.S Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Prices are stated relative to a par value of $100 Fill in the nominal YTM for Pickman Inc.'s bonds Last EST UST EST Volume Maturity Price Spread (Years) (1000s) Company Schubert Inc. Chapman Inc. Rust Inc. Murphy & Co Pickman Inc. Coupon 8.13% 01-01-2022 $82.25 9.63% 01-01-2042 $80.48 4.50% 01-01-2017 $95.18 5.38% 01-01-2017 $101.02 7.75% 01-01-2022 $93.11 Last Yield 11.11% 12.05% 5.62% 5.14% 6.20 7.15 1.37 0.89 3.89 10 72,070 65,275 59,277 57,465 56,305 10 If Chapman Inc. wants to issue new 30-year bonds today, what coupon rate would the bonds have to pay to be issued at par? O 12.58% O 11.65% O 10.15% O 12.05%

Explanation / Answer

Murphy co. bond is trading at premium.

1 Face value (FV) $                                        1,000 2 Coupon rate 9.63% 3 Number of compounding periods per year                                                    2 1*2/3 Interest per period (PMT) $                                        48.15 Bond price (PV) $                                   (804.80) 4 Number of years to maturity 30 5 = 4*3 Number of compounding periods till maturity (NPER)                                                  60 Coupon rate to be set on new bonds RATE(NPER,PMT,PV,FV)*2 Coupon rate to be set on new bonds 12.05%

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