Assume the zero-coupon yields on default-free securities are as summarized in the following table. What is the price today of a 2-year, default-free security with a face value of $1,000 and an annual coupon rate of 4%? Does this bond trade at a discount, at par, or at a premium?
Note: Assume annual compounding.
The price today of a 2-year, default-free security with a face value of $1,000 and an annual coupon rate of 4% is $______. (Round to the nearest cent.)
Does this bond trade at a discount, at par, or at a premium? (Select the best choice below.)
1. This bond trades at par.
2. This bond trades at a discount.
3. This bond trades at a premium.
4. Not enough information.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Maturity (years)
Zero-coupon YTM
1
3.00%
2
3.40%
3
3.70%
4
4.00%
5
4.30%
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