The following information relates to Questions 16-29

-A four-year corporate bond with a 7% coupon has a Z-spread of 200 bps. Assume a flat yield curve with an interest rate for all maturities of 5% and annual compounding. TheBond will most likely sell:
A) close to par.
B) at a premium to par.
C) at a discount to par.

Question

The following information relates to Questions 16-29
 
-A four-year corporate bond with a 7% coupon has a Z-spread of 200 bps. Assume a flat yield curve with an interest rate for all maturities of 5% and annual compounding. TheBond will most likely sell:
A) close to par. 
B) at a premium to par. 
C) at a discount to par.

Quizplus · Accepted Answer

The Z-spread is 200 bps, which is 2%. The yield to maturity is 5% + 2% = 7%. The coupon rate is also 7%. Therefore, the bond will sell close to par.

The Following Information Relates to Questions 16-29