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As an investor, you are studying a bond with a $50 coupon that matures in 15 years. You know from experience that your opportunity cost of money is always about 7.5%. What is the most you would pay for this bond?
PV = price =
a. You see a bond that matures in seven years and has a yield-to-maturity of 4.5%. What does that 4.5% actually mean in practical, investor terms?
b. A Boeing bond has a coupon of 4.5%. The current yield-to-maturity is 5.12%. You don’t need to do any calculations while you answer this: Is the bond trading at a discount or at a premium? Explain how you know this and why it makes sense.