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Teresa bought a corporate bond with the time to maturity of 10 years, yield to maturity of 8%, and face value of $1,000. It pays semiannual coupons and the coupon rate of 8%.
(a) Was the bond sold at a premium, discount, or par? Calculate and explain in words all calculations.
(b) Carl, a friend of Teresa, bought a different financial security (not a bond), which pays equal annual payments for 10 years at the end of each year. The discount rate for this security is 15%. If Carl paid the same amount for this security as Teresa paid for her bond, what annual payment should Carl expect? Calculate and explain in words all calculations.
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