20· valuer 10.00 points Ch06_c Bond Value and Prices Concept Check QUESTION PROG

Question

20· valuer 10.00 points Ch06_c Bond Value and Prices Concept Check QUESTION PROGRESS Click And Drag Click And Drag Drag the following examples to the appropriate bond type. Jack has a 10-year bond with a face Jack has a 10-year bond with a face value of $3,000, a yield to maturity of value of $3,000, a yield to maturity of 5.8%, and a coupon rate of 6.3% 5.8%, and a coupon rate of 6.3% ll has a 5-year bond with a face value of 25,000, a yield to maturity of 4.9%. and a coupon rate of 4.9% -Discount bond Jennifer has a '1s-year bond with a face value of $5,000, a yield to aturity of 9.3%, and a coupon rate -At-Par bond Reset 4 prev next 4 Boo F2

Explanation / Answer

A premium bond is a bond which is trading above its par value. It offers a coupon which is higher than the prevailing interest rate. in case of a premium bond, the bond is traded till the yeild to maturity is in line with the interest rate prevailing. Due to this "bid up" process, the bond trades at a premium to its par value. Hence, Jack's bond is a premium bond where coupon rate is 6.3% and yild to maturity is 5.8%.

On similar lines, Jill's bond is "at par" bond wherein coupon rate and yield to maturity is same.

Jennifer's bond on the other hand is a discount bond, as the coupon rate is 7.8% and yeild to maturity is 9.3%.

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