Will issue a new 10 year AA rated corporate bond with a coupon rate of 7.00%. The bond pays interest semi-annually and has a face value of $ 1,000. If existing AA corporate bonds with 10 years to maturity have a yield to maturity of 5.00%, what will be the discount or premium of JAN Corp.’s bond relative to its face value?

To determine whether JAN Corp.'s bond will sell at a discount, premium or at par we need to compare its coupon rate to the current market yield to maturity for similar bonds.

Here are the steps to find out whether the bond will be issued at a discount, premium, or face value:

Step 1: Compare the coupon rate to the market yield - JAN Corp bond's coupon rate: 7.00% - Market yield for similar AA bonds: 5.00%

Since JAN Corp.’s bond coupon rate (7.00%) is higher than the market yield (5.00%), the bond will sell at a premium. This is because investors are willing to pay more for a bond that gives them a higher interest payment (coupon) than what is currently available in the market.

Step 2: Calculation of price (this requires some financial calculations that involve the present value of annuity and lump-sum formulas, but I'll explain the logic without the complex math for clarity's sake):

Interest payment per period: $1,000 face value * 7.00% annual coupon rate / 2 (because it's semi-annual) = $35

Number of periods: 10 years * 2 times a year = 20 periods

Discount rate per period: 5.00% market yield / 2 (semi-annual) = 2.5%

Here we would calculate the present value of the 20 semi-annual interest payments of $35 each at the market yield of 2.5% per period plus the present value of the $1,000 face value that will be paid at the end of the 10 years. The sum of these present values will give us the price of the bond.