Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Question

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The bond is a discount bond because its price ($855.34) is less than its par value ($1,000). This occurs because the coupon rate (4.75%) is less than the market interest rate (6.25%).

Compute the Price of a 4