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Compute the bond price-effective annual rate

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Consider three bonds A, B and C. Bonds A and B have 3-year maturity with face value of $1000 pay quarterly coupon payments at coupon rate of 8% and 4%, respectively. Bond C with face value of $1000 has 3-year horizon and pays semiannual coupon payment at 8% coupon rate. Suppose the (annual) market interest rate is 6%. Answer the following questions.

(a) We only consider bond A and B in this part. Compute the bond price, effective annual rate, yield to maturity and current yield for each bond. Identify the type of each bond. Premium bond or discount bond? Explain.

(b) Now, we only consider bond C and a zero-coupon bond with 3-year maturity, that pays $1000 at maturity, in this part. Suppose the (annual) market interest rate is 4% now, what are their prices?

Reference no: EM132689562

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