A $100,000 5-year 7% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 6%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

Question

Quizplus · Accepted Answer

B)
PV of coupon payments: 7,000 PVAV(6%,5) = 7,000 × 4.21236 = 29,487
PV of principal repayment: 100,000 PV (6%,5) = 100,000 × 0.74726 = 74,726
Total = 104,213
Premium = 100,000 - 104,213 = 4,213

A $100,000 5-Year 7% Bond Is Issued on January 1,2017