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Maturity and a market interest rate


Problem:

Compute the price of a 5 percent coupon bond with 20 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual.) Which statement is correct?

  • The bond is a discount bond selling at $858.41
  • The bond is a discount bond selling at $922.34
  • The bond is a premium bond selling at $858.41.
  • The bond is a premium bond selling at $922.34.

Note: Explain all steps comprehensively.

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Finance Basics: Maturity and a market interest rate
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