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Please calculate the value of a 30year bond with a 10% coupon, that is due in...

Please calculate the value of a 30year bond with a 10% coupon, that is due in 8 years, with current interest rates of 6%. Please explain why it would be a premium or discount bond.

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Answer #1

lets assume face value of the bond = $1000

remaining life = 8 years

coupon rarte = 10%

coupon per year = 1000*10% = 100

value of the bond is present value of future cash flows discounted at required rate of return

so value of the bond = $1248.39

when yield to maturiy is more than coupon rate bond will trade at discount

when yield to maturity is less than coupon rate bond will trade at premium

when yield to maturity equals coupon rate bond will trade at par value

here in the given question yield to maturity(6%) is less than coupon rate(10%) hence it is a premium bond.

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