Bond prices and yields Assume that the Financial Management Corporation's $1,000 par value bond has a 5.400% coupon, matures on May 15, 2023, has a current price quote of 112.721 and a yield to maturity (YTM) of 4.361%. Issue date is current in other words today.
Given this information, answer the following questions:
a. What is the dollar price of the bond?
b. What is the bond's current yield ?
c. Is the bond selling at par, at a discount, or at a premium? Why?
d. Compare the bond's current yield calculated in part b to its YTM and explain why they differ.
Responses
a. The dollar price of the bond is $_______ . (Round to the nearest cent.)
b. The bond's current yield is_________ %. (Round to two decimal places.)
c. The bond is selling at (1)________ because its price is (2)______ the par value. (Select from the dropdown menus.)
(1) a discount
a premium
par
(2) equal to
less than
greater than
d. Compare the bond's current yield calculated in part b to its YTM and explain why they differ.
The yield to maturity is (3) than the current yield because the former includes $127.21 in price
(4) between today and the May 15, 2023 bond maturity. (Select from the dropdown menus.)
(3) lower
Higher
(4) appreciation
Depreciation