Problem
The following Microsoft bond has a coupon rate of 5.2%. Identify the Last Trade Yield.
A. Would you expect this bond to be trading at a premium or a discount? Why?
B. Look at the Price/Yield chart on the hyperlinked page. What is the current bond price? The par/offer price was $100. Is this bond trading at a premium or a discount? How can you tell?
C. What is the difference between the coupon rate and the yield on this bond (i.e., what do they mean for the investor who purchased/held the bond)?
D. FINRA Morningstar documents the yield curve, which shows the maturity and yield (in %) for various treasury bonds. The yield curve is found on the "Market At-A-Glance" tab in the Bond Yield and Performance At-A-Glance section - "Treasury Yield". The graph on the right depicts this as a line graph for current compared to 1 year ago. What do you notice about the relationship between maturity and yield? Which of the bonds has the most interest rate risk? Why?