Consider the two bonds described below:
Bond A
Maturity(years) 15
Coupon rate(%)10
(paid semiannually)
Par Value 1,000
Bond B
Maturity(years) 20
Coupon (%) 6
(paid semiannually)
Par value 1,000
a. If both bonds had a required of 8%, what would the bond's price be?
b. Describe what it means if a bond sells at a discount, at a premium,at its face value (par value). Are these two bonds selling at a discount, premium, or par?
c. If the required return on the two bonds rose to 10%, what would the bond's prices be?