A $2000 bond is redeemable at 105 in 6 years. It pays semi-annual coupons at j2=...

A $2000 bond is redeemable at 105 in 6 years. It pays semi-annual coupons at j₂= 10% and is bought to also yield j₂= 10%. This bond sells at  

Select one:

a. a discount of $55.68

b. a premium of $55.68

c. a discount of $44.32

d. a premium of $44.32

Solutions

Expert Solution

Sale Price of Bond is equals to the Present value of all future cash flow of bond discounted at yield rate. When Bond is sold more than its Face value then it is called sell at premium and if it sold less than its Face value then it is called sell at discount.

Correct Answer is (b) a premium of $ 55.68

Please refer to below spreadsheet for calculation and Answer. Cell reference also provided for better understanding

Cell Reference -

Hope this will help, Please do comment if you need any further explanation . Your feedback would be appreciated.

jeff jeffy answered 1 year ago

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