2) Bond A has a coupon rate of 10% and 10 years till maturity. Bond B has a coup

Question

2) Bond A has a coupon rate of 10% and 10 years till maturity. Bond B has a coupon rate of 14% and 14 years till maturity. Bond C’s coupon rate is 18% with 18 years till maturity. If the yield to maturity of each bond is 14% then the bonds will sell respectively at

a) Discount, discount, discount

b) Premium, premium, premium

c) Par, par, par

d) Discount, par, par

e) Premium, par, discount

f) Par, par, premium

g) Premium, discount, par

h) Premium, par, premium

i) Par, par, discount

j) None of the above

Explanation / Answer

Answer is J. None of the above.

Hence Bond A is selling at a discount, Bond B at par and Bond C at premium

Formula Price Bond A PV(14%,10,100,1000) ($791.36) Bond B PV(14%,14,140,1000) ($1,000.00) Bond C PV(14%,18,180,1000) ($1,258.70)

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