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Title: A 3 year default free security with a face value of $1000 and an annual coupon rate of 6% will ... Post by: Memphic on Nov 19, 2017 A 3 year default free security with a face value of $1000 and an annual coupon rate of 6% will trade:
A) at a discount. B) at a premium. C) at par. D) There is insufficient information provided to answer this question. Title: Re: A 3 year default free security with a face value of $1000 and an annual coupon rate of 6% will ... Post by: anicid on Nov 19, 2017 B
Explanation: B) P = 60/1.058 + 60/1.0552 + 1060/1.0523 = 1021.07 which is greater than $1000, so it trades at a premium. The other way to answer this question is to simply note that the coupon rate is greater than any of the zero coupon yields during the first three years so its must trade at a premium. |