Question

BA Corp is issuing a 5 year bond with a coupon rate of 8 percent. The interest rate for similar bonds is currently 6 percent. Assuming annual payments, what price would you pay for the bond? Is it trading at a premium or a discount? Round your answer to 2 decimal places. $920.15, discount -$1,084.25, discount $920.15, discount $1,084.25, premium

Answer 1

1)

$ 7 8 1,000 8% 11 80 5 9 10 B A Par value (FV) B Coupon rate C Number of compounding periods per year D = AxB/C Interest per period (PMT) E Number of years to maturity Number of compounding periods till F= CxE maturity (NPER) Market rate of return/Required rate of G return Market rate of return/Required rate of G/creturn per period (RATE) 11 6% 6% PV(RATE,NPER,PMT,FV)*-1 Bond price Bond price $ 1,084.25 =PV(6%,5,80,1000)*-1 19 Hence, correct option is "$1,084.25, premium"

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