Eliza Mok spots two bonds in the market in which she is interested. The first...
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Finance
Eliza Mok spots two bonds in the market in which she is interested. The first bond is a 20-year bond issued by Orange Ltd two years ago with a coupon rate of 4.9%. The second bond is a 10-year bond issued by Pear Ltd one year ago at a coupon rate of 5.1%. Both bonds have a pa r value of $1,000 and make semiannual payments.
a. If the yield to maturity (YTM) on the Orange bond is 5.0%, what is the current bond price?
b. If the Pear bond currently sells for 102% of par value, what is the YTM?
c. Eliza wonders why some bonds are selling at premium over par value while other bonds sell at discount or at par. Explain.
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