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Calculating the bond in each of the three situations: Bond at Par, Premium Bond and Zero Coupon Bond

Assumptions: $1000 face value of Bond

Coupon Rate = 5% Duration (maturity) = 5yrs Premium

Bond coupon rate = 4%

General Expression for the value of a bond: Bond value = present value of coupons + present value of par

Bond value = C [1 – 1/ (1+r) t] / r + FV / (1+r) t

-Bond at Par Bond value = PV of coupons (annuity) + PV of face value

-Premium Bond

Premium bond – a bond that sells for more than its par value. This is the case when the YTM is less than the coupon rate.

-Zero-coupon Bond

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92064396

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