Asked by Hunter Stankiewicz on Apr 27, 2024
Verified
Margaret wants to compute the present value of a six year semi-annual 8% coupon bond that has a 9% yield to maturity. Which one of the following is correct?
A) The number of interest payments is twelve.
B) The present value is assumed to be $1,000.
C) The amount of each interest payment is $80.
D) The bond is selling at a premium.
E) The current price of the bond will be greater than the par value.
Yield To Maturity
The total return anticipated on a bond if held until it matures, factoring in current market price, par value, coupon interest rate, and time to maturity.
Semi-Annual
Occurring twice a year; pertaining to a period of six months.
Coupon Bond
A debt security that pays the holder a fixed interest rate, known as the coupon, usually annually or semi-annually, until its maturity date.
- Gain an understanding of the connection between interest rates and bond prices, with special attention to the effects of maturity, coupon rates, and yield to maturity on valuation.
- Calculate and understand the significance of yield to maturity, current yield, and the impact of interest rate changes on bond prices.
Verified Answer
CC
carlos cabreraApr 30, 2024
Final Answer :
A
Explanation :
The bond pays interest semi-annually for six years, resulting in 6*2 = 12 interest payments.
Learning Objectives
- Gain an understanding of the connection between interest rates and bond prices, with special attention to the effects of maturity, coupon rates, and yield to maturity on valuation.
- Calculate and understand the significance of yield to maturity, current yield, and the impact of interest rate changes on bond prices.