Question

Nedo Enterprises originally sold bonds in 2012 with a 10 year maturity, $1000 par, 6% coupon paying annual interest. It is now 2019 and 7 years later.Bond of similar risk selling at par now have a 5% coupon rate.

1. What price would bond investors be willing to pay for a Nedo bond today?

2. Is that a premium or discount?

Answer 1

Hello SIr/ Mam

Now,

Periods to Maturity = 3 years

YTM = 5%

FV = $1,000

Coupon = $60

(a) Bond price today = $1,027.23

Using excel function, "=PV(5%,3,-60,-1000,0)", we get PV = $1,027.23

(b) It is at a premium today

I hope this solves your doubt.

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