A 6% coupon-paying bond has a face value of $100, yield to maturity of 5% p.a. and 2 years to maturity. Coupons are paid semi-annually. If you buy the bond today at $104, you buy the bond:A.At a lossB.Do not knowC.At a gainD.At no gain/loss

To answer this question, we first need to calculate the bond's intrinsic value, which is the present value of its future cash flows (coupon payments and face value at maturity), discounted at the yield to maturity rate.

Step 1: Calculate the semi-annual coupon payment The bond pays a 6% annual coupon, which is $6 per year. Since coupons are paid semi-annually, each coupon payment is$6/2 = $3.

Step 2: Calculate the semi-annual yield to maturity The annual yield to maturity is 5%, so the semi-annual yield to maturity is 5%/2 = 2.5%.

Step 3: Calculate the present value of the coupon payments The present value of the coupon payments is the sum of the present values of each individual coupon payment. Since there are 2 years to maturity and coupons are paid semi-annually, there are 2*2 = 4 coupon payments. The present value of the coupon payments is $3/(1+0.025) +$3/(1+0.025)^2 + $3/(1+0.025)^3 +$3/(1+0.025)^4 = $11.41.

Step 4: Calculate the present value of the face value The present value of the face value is the face value discounted back to today using the semi-annual yield to maturity. This is $100/(1+0.025)^4 =$90.70.

Step 5: Calculate the intrinsic value of the bond The intrinsic value of the bond is the sum of the present value of the coupon payments and the present value of the face value. This is $11.41 +$90.70 = $102.11.

Step 6: Compare the intrinsic value to the purchase price The intrinsic value of the bond is $102.11, which is less than the purchase price of$104. Therefore, you are buying the bond at a loss. So, the answer is A. At a loss.