The yield to maturity on a $1,000 face value bond is 4

Finance Oct 30, 2020

The yield to maturity on a $1,000 face value bond is 4.5%. The coupon rate on this same bond is 3%. Is the bond trading at a premium, a discount, or par?

Expert Solution

Computation of Price of Bond using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Price of Bond = ?

Rate = Yield to Maturity = 4.5%

Nper = Number of Years to Maturity = 1 (assumed as number of years is not given)

PMT = Annual Coupon Payment = $1,000*3% = $30

FV = Face Value = $1,000

Substituting the values in formula:

=-pv(4.5%,1,30,1000)

PV or Price of Bond = $985.65

As we can see that price of bond is less than face value. So, bond is trading at discount.

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