Padme purchases a $30000 face value bond with 4 years left to maturity and a coupon rate of 10

Business Aug 16, 2020

Padme purchases a $30000 face value bond with 4 years left to maturity and a coupon rate of 10.05%. The current interest rate is 5.950000000000001%. a) When she buys the bond, will it be at a premium or at a discount? b) Construct the amortization table for the bond.

Expert Solution

a) Computation of Price of Bond using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Price of Bond = ?

Rate = 5.950000000000001%

Nper = 4 Years

PMT = $30,000*10.05% = $3,015

FV = $30,000

Substituting the values in formula:

=-pv(5.950000000000001%,4,3015,30000)

PV or Price of Bond = $34,266.96

So, Bonds are issued at Premium. ($34,266.96>$30,000)

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