1. A bond pays a coupon of 7.25% per year and the bond’s current yield is 7.71% per year. Therefore, the bond is trading at a ____ to its par value. If the bond’s yield to maturity does not change, the bond’s price will be ____ next year.

1) Premium, lower

2) Discount, lower

3) Premium, the same

4) Discount, higher

5) Premium, higher

2. A bond has a $1,000 par value, 18 years to maturity, and pays a coupon of 6.00% per year, annually. The bond is callable in eight years at 115% of par value. If the bond’s price is $1,062.97, what is its current yield?

1) 5.81%

2) 5.90%

3) 5.73%

4) 5.64%

5) 5.53%