Question

Dave purchased a 10-year par value bond with semiannual coupons at a nominal annual rate of 4% convertible semiannually at a price of 1021.50. The bond can be called at par value F on any coupon date starting at the end of year 5. The price guarantees that Dave will receive a nominal annual rate of interest convertible semiannually of at least 6%. Determine whether the bond was bought at par, at a discount, or at a premium. at a discount at par at a premium

Answer 1

Answer C At a premium

The par value bond was purchased with a semi annual coupons at a nominal rate of 4%, with callable feature at a price to yield 6% semi annually convertible. The price of the par bond is $ 1021.50, so the bond was purchased at a premium.