Consider the following zero-coupon yields on default free securities:

maturity (years)

1

2

3

4

5

zero-coupon ytm

5.80%

5.50%

5.20%

5.00%

4.80%

what is the price today of a two-year, default-free security with a face value of $1000 and an annual coupon rate of 5.75%? does this bond trade at a discount, premium, or at par?

2. explain why the expected return of a corporate bond does not equal its yield to maturity.

3. the prices of several bonds with face values of $1000 are summarized in the following table:

bond a b c d

price $972.50 $1040.75 $1150.00 $1000.00

for each bond, state whether it trades at a discount, at par, or at a premium.