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(Related to Checkpoint 9.3)(Bond valuation) Doisneau
20-year
bonds have an annual coupon interest of
7
percent, make interest payments on a semiannual basis, and have a
$1,000
par value. If the bonds are trading with a market's required yield to maturity of
13
percent, are these premium or discount bonds? Explain your answer. What is the price of the bonds?
Question content area bottom
Part 1
a. If the bonds are trading with a yield to maturity of
13%,
then (Select the best choice below.)
A.the bonds should be selling at a
premium
because the bond's coupon rate is
greater
than the yield to maturity of similar bonds.
B.the bonds should be selling at a
discount
because the bond's coupon rate is
less
than the yield to maturity of similar bonds.
C.
the bonds should be selling at par because the bond's coupon rate is equal to the yield to maturity of similar bonds.
D.
there is not enough information to judge the value of the bonds.
Part 2
b.The price of the bonds is
$enter your response here.
(Round to the nearest cent.)
Answer & Explanation
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