Question

The bonds issued by Manson amp; Son bear a coupon of 6 percent, payable semiannually. The bond matures in 15 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity? Is this a premium or discount bond and why?

Answer 1

Answer and Explanation:

The computation of the yield to maturity is as follows;

Given that

PMT = Coupon rate = $1,000 × 6% ÷ 2 = $30

Future value = $1,000

Present value = $1,000

NPER = 15 × 2 = 30 years

Since the bond sells at par so the present value would be equivalent to the future value

Also the coupon rate is equivalent to the yield to maturity i.e. 6%

So this is neither a premium nor a discount bond as the coupon rate is equivalent to the yield to maturity