Question

A $10,000 6% bond with annual coupons matures at par on December 31, 2020. The effective annual yield of the bond from purchase to maturity is 5%. In which of the following ranges is the amount for amortization of premium in the coupon paid on December 31, 2005?

Answer 1

	Particulars	Amount
	Bond Face Value	10000
a	6% bond with annual coupon	600
b	yield 5% for 5 year Annuity Factor	4.329
a*b	Maturity Date 31.12.20 & Present value of Coupon	2597.4
	Mature at Par 10000 present value PVF 5% on 5th year=10000	7840
	Value of Bond	10437.4
	Assumed Purchase Price	10437.4
	Bond Premium(10437.5-10000)	437.4
	Amortisation=(Purchase price*Yield rate)-Coupon interest	.=10437.5*5%-600
		.=521.875-600
		78.125