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Eliza Mok spots two bonds in the market in which she is interested. The first bond...

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Finance

Eliza Mok spots two bonds in the market in which she isinterested. The first bond is a 20-year bond issued by Orange Ltdtwo years ago with a coupon rate of 4.9%. The second bond is a10-year bond issued by Pear Ltd one year ago at a coupon rate of5.1%. Both bonds have a pa r value of $1,000 and make semiannualpayments.

a. If the yield to maturity (YTM) on the Orange bond is 5.0%,what is the current bond price?

b. If the Pear bond currently sells for 102% of par value, whatis the YTM?

c. Eliza wonders why some bonds are selling at premium over parvalue while other bonds sell at discount or at par. Explain.

Answer & Explanation Solved by verified expert
4.3 Ratings (735 Votes)
ORANGE LTD BOND ParFace value 1000 Annual Coupon rate 0049 Annual coupon 49 semiannual coupon 245 Present Value Future value1rmmt r is the interest rate that is 5 m is the compounding period that is 2 mt is the time period price of the    See Answer
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Transcribed Image Text

Eliza Mok spots two bonds in the market in which she isinterested. The first bond is a 20-year bond issued by Orange Ltdtwo years ago with a coupon rate of 4.9%. The second bond is a10-year bond issued by Pear Ltd one year ago at a coupon rate of5.1%. Both bonds have a pa r value of $1,000 and make semiannualpayments.a. If the yield to maturity (YTM) on the Orange bond is 5.0%,what is the current bond price?b. If the Pear bond currently sells for 102% of par value, whatis the YTM?c. Eliza wonders why some bonds are selling at premium over parvalue while other bonds sell at discount or at par. Explain.

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