A 1 B2 C 3 D4 5 Which of the following statements is FALSE

A ) # 1 B)#2 C) #3 D)#4 5) Which of the following statements is FALSE? A) If a bond trades at a premium, its yield to maturity will exceed its coupon rate. B) A bond that trades at a premium is said to trade above par. C) When a coupon-paying bond is trading at a premium, an investor\'s return from the coupons is diminished by receiving a face value less than D) Holding fixed the bond\'s yield to maturity, for a bond not trading at par, the present value of the bond\'s remaining cash flows changes as the time to maturity decreases. the price paid for the bond. 6) Consider the following four corporate bonds that have cars to Maturi 15) Which of these bonds sells at a discount? A) #1 ?) #2 C) #3 D)#4 7, on January 1, 2010, Brightstar Inc. issues $1,000,000 of 8%, semiannual 3-year coupon bonds with yield-to-maturity of 10%. a. What is the bond\'s issuing price? b. Using effective interest method, what is the interest expense for the first period and the second period? c. How much of the interest expenses are paid for the first year?

Solution

Question 5

Option A is false.

A) If the Bond trades at premium, its yield to maturity will exceed its coupon rate. When a bond trades at premium it means that it is paying more interest then in the market, and so it is at premium. Market here in bond means yield to market and interest of bond is the coupon rate. So for a bond at premium coupon must be greater then YTM and so the said statement is false.

Question 6

B) #2

The bonds that is trading at dicount must have price lower then its face value. Since in the given case assuming $1000 be face value, since all the bond price is higher then facevalue and bond #2 is only having price lower then its facevalue so bond #2 is trading at discount.

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Question 1 )- C

Like all other bond coupon bond is also depends upon YTM, so it is not necessary that a coupon bond always trade at discount. If the coupon interest is greater then YTm, bond will trade at premium.

Question 3 - B

When the bond trades at par it means it is paying same as the market yield and so Coupon of bond is equal to YTM.

Question 4 - #2

The bonds that is trading at dicount must have price lower then its face value. Since in the given case assuming $1000 be face value, since all the bond price is higher then facevalue and bond #2 is only having price lower then its facevalue so bond #2 is trading at discount.

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