1. A bond pays a coupon of 7.25% per year and the bond’s current yield is 7.71% per year. Therefore, the bond is trading at a ____ to its par value. If the bond’s yield to maturity does not change, the bond’s price will be ____ next year.
1) Premium, lower
2) Discount, lower
3) Premium, the same
4) Discount, higher
5) Premium, higher
2. A bond has a $1,000 par value, 18 years to maturity, and pays a coupon of 6.00% per year, annually. The bond is callable in eight years at 115% of par value. If the bond’s price is $1,062.97, what is its current yield?
1) 5.81%
2) 5.90%
3) 5.73%
4) 5.64%
5) 5.53%