Bond prices and yields assume that the financial management corporation's $1 comma 000-par-value bond has a 7.800 % coupon, matures on may 15, 2027, has a current price quote of 106.124 and a yield to maturity (ytm) of 6.588 %. given this information, answer the following questions: a. what was the dollar price of the bond? b. what is the bond's current yield? c. is the bond selling at par, at a discount, or at a premium? why? d. compare the bond's current yield calculated in part b to its ytm and explain why they differ.

(a) Dollar price of the bond = Par value × Current price percentage

                                             = $1,000 × 106.124%

                                             = $1,061.24

(b) Bond's current yield:

Annual interest paid in dollars = Bond par value × Rate of interest

                                                  = $1,000 × 7.8%

                                                  = $78

                              = 0.0734

                              = 7.34%

(c) Issue price of bond is $1,000 and current maturity price is $1,061.24. Thus, bond price is greater than the par value.

(d) Current yield is the return on bond at current price. Yield to maturity is 6.588 % and current yield is 7.34%. Since the current price is more than the par value, therefore, YTM is lower than the current yield.

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