Question

A $15 000, 8% bond with semi-annual interest coupons redeemable at par in seven years is...

A $15 000, 8% bond with semi-annual interest coupons redeemable at par in seven years is bought to yield 7% compounded semi-annually. Determine the amount of premium or discount.

Homework Answers

Answer #1

Maturity Value = $15,000

Annual Coupon Rate = 8.00%
Semiannual Coupon Rate = 4.00%
Semiannual Coupon = 4.00% * $15,000
Semiannual Coupon = $600

Time to Maturity = 7 years
Semiannual Period = 14

Annual Yield = 7.00%
Semiannual Yield = 3.50%

Issue Value = $600 * PVIFA(3.50%, 14) + $15,000 * PVIF(3.50%, 14)
Issue Value = $600 * (1 - (1/1.035)^14) / 0.035 + $15,000 * (1/1.035)^14
Issue Value = $600 * 10.920520 + $15,000 * 0.617782
Issue Value = $15,819

Premium on Bonds = Issue Value - Maturity Value
Premium on Bonds = $15,819 - $15,000
Premium on Bonds = $819

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