Asked by Facienne Guerlanda on Apr 28, 2024
Verified
A Government of Canada bond that was issued with a term to maturity of 15 years ago and is expected to mature in 5 years has a coupon of 5%.If other Government of Canada bonds that are scheduled to mature in 5 years are currently paying a coupon of 5%,what can reasonably expect that these Government of Canada bonds are currently priced at?
A) a discount to their par value
B) a premium to their par value
C) equal to their par value.
D) none of the above are correct.
Government of Canada Bond
A debt security issued by the Canadian government to support government spending.
Maturity Date
The specified date on which the final payment of a loan, bond, or other financial instrument must be paid in full.
Par Value
The face value of a bond or stock, as stated by the issuing company.
- Learn about the essentials of how bonds are priced and the factors that contribute to the fluctuation of bond prices.
Verified Answer
YS
Yeshi SeldonMay 03, 2024
Final Answer :
C
Explanation :
Since the bond in question has a coupon rate of 5%, the market rate of other bonds with the same maturity and coupon rate is also 5%. Therefore, the bond can be priced at par value as there is no premium or discount.
Learning Objectives
- Learn about the essentials of how bonds are priced and the factors that contribute to the fluctuation of bond prices.