Problem 1: Marigold Merchants has an outstanding issue of $1,000 par value bonds with an 8% coupon interest rate. The issue pays interest annuallly and has 15 years remaining to its maturity date. Bonds of similar risk are currently yielding a 10% rate of return. What is the value of these Marigold Merhant bonds?
Is the bond selling at a discount or premium, and why?
Problem 2: Marigold Merchants also has an outstanding issue of $1,000 par value bonds with a 12% interest rate. The issue pays interest semiannually and has 10 years remaining to maturity. Bonds of similar risk are currently selling to yield a 10% rate of return. What is the value of these Marigold Merchants bonds?
Is the bond selling at a discount or premium, and why?