Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Question

Quizplus · Accepted Answer

The bond is selling at a discount because its coupon rate (6%) is less than the market interest rate (8.75%). The price of the bond would be less than its par value to compensate investors for the lower coupon payments compared to the current market rate.

Compute the Price of a 6 Percent Coupon Bond with 10