Suppose you purchase a coupon bond that has annual coupons of 5.2% and will mature in 15 years. You hold the bond for nine years, and sell it immediately after receiving the ninth coupon. Assume that the bond’s yield to maturity (YTM) was 4.3% when you purchased the bond. Show all work COMPLETELY.
a. Do you think the bond is initially trading at a premium, discount or at par? Explain your answer.
b. Compute the price that you would pay for such a bond, per $100 face value.
c. If you sell the bond for $93.73 right after receiving the ninth coupon, what is the yield-to-maturity of the coupon bond then?
d. If you buy the bond for the price found in a., then sell it after nine years for the price given in b., what is the annualized return that you receive?