Shannon purchased a $4,500 bond that was paying a coupon rate of 6.70% compounded semi-annually and...
Shannon purchased a $4,500 bond that was paying a coupon rate of 6.70% compounded semi-annually and had 4 more years to mature. The yield at the time of purchase was 5.30% compounded semi-annually.
a. How much did Shannon pay for the bond?
What was the amount of premium or discount on the bond?
Premium or Discount? and amount was _
Homework Answers
a.
Bond Par Value, FV = $4,500
Semi Annual Coupon, PMT = (0.067/2)(4,500) = $150.75
Time Period, N = 8 semi-annual Periods
YTM = 0.053
Calculating Bond Price,
Using TVM Calculation,
PV = [FV = 4,500, PMT = 150.75, N = 8, I = 0.053/2]
PV = $4,724.42
So,
Bond Price = $4,724.42
As Bond Price is greater than par value, Bond is trading at premium to par value,
Premium = 4,724.42 - 4,500
Premium = $224.42
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