1. Doisneau 16-year bonds have an annual coupon interest of 11 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 16 percent, are these premium or discount bonds? Explain your
answer. What is the price of the bonds?
Solution
Solution:
Price of the Bond is
The bonds are selling at discount, as par value of bond is $ 1,000 while they are selling at $
713.85. They are selling at a dicsount of $ 286.15
Current Price of Bond, 8 % market interest (YTM 16 %)
Interest ( 5.5 %)
Maturity
Value
PVAF( 8%, 32 years) 11.43
PVIF (8%,32
years)
0.0852
55 1,000
628.65 85.2
Current Price ( $ ) 713.85