Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

Question

Quizplus · Accepted Answer

The bond is priced below its par value because the coupon rate (6.5%) is less than the market interest rate (10.5%), indicating it is a discount bond. The price can be calculated using the present value of annuity formula for the coupon payments and the present value formula for the par value, both discounted at the market interest rate.

Calculate the Price of a 6