A CD with a face value of USD 250,000,000.00 was issued at par with a coupon of 5% for 91 days. You buy it in the secondary market when it has 30 days remaining to maturity and is trading at 5.25%. How much do you pay?
A) USD 252,056,972.97
B) USD 252,028,916.32
C) USD 250,000,000.00
D) USD 248,911,014.31

Question

Quizplus · Accepted Answer

The correct answer is A because the bond is trading at a premium, so you will pay more than the face value. The premium is calculated as the difference between the market price and the face value, which is USD 2,056,972.97. The total amount you will pay is the face value plus the premium, which is USD 252,056,972.97.

A CD with a Face Value of USD 250,000,000