Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / A $1000 par value bond paying interest at j2=6% has book value $1100 on March 1, 2010, at a yield rate of j2=4
A $1000 par value bond paying interest at j2=6% has book value $1100 on March 1, 2010, at a yield rate of j2=4.5%. Determine the amount of amortization of the premium on September 1, 2010, and the new book value on that date.
| Bond Par value =$1,000 |
| Coupon rate =6% pa , semi annual compounding. |
| Semi annual coupon =3% |
| YTM =4.5% pa, semi annual compounding |
| Semi Annual Yield =2.25% |
| Coupoon is payable on March 1 & Sep 1. |
| Book Value on March 1 =$1,100 |
| Interest expense to be accrued on Sep 1=1100*2.25%=$24.75 |
| Semi Annual Coupon amount =$1000*3% =$30 |
| So Premium Amortization on Sep 1,2010=$30-$24.75=$5.25 |
| New Book Value of Bond on Sep 1,2010 =$1,100-$5.25=$1,094.75 |
