Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Question

Quizplus · Accepted Answer

Using the formula N = 20, I = 4.375 (8.75% divided by 2), PMT = 30 (6% of par value divided by 2), and FV = 1000, we get a price of $819.19. Since this is less than the par value of $1,000, it is a discount bond.

Compute the Price of a 6 Percent Coupon Bond with 10