Question

A $50,000, 9.00% bond redeemable at par, with annual coupon payments, is purchased 7 years before...

A $50,000, 9.00% bond redeemable at par, with annual coupon payments, is purchased 7 years before maturity to yield 6.00% compounded annually.  

a. What was the purchase price of the bond?

Round to the nearest cent

b. What was the amount of discount or premium on the bond?

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Homework Answers

Answer #1

a. Bond price formula:

Where,
C = Periodic coupon payment,
P = Par value of bond,
r = Yield to maturity
n = No. of periods till maturity

C = 50,000 * 9% = $4,500

Substituting the values in the formula, we get:

b. The bond is selling above its par value, that means the bond is selling at a premium.

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