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Lada Lada
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7 years ago
A $100 000 bond, redeemable at 110 in seven years with 6.75% coupons payable annually, is bought to yield 7.25% compounded annually.
(i) Determine the discount and the purchase price.
(ii) Construct a schedule of accumulation of discount.
Textbook 
Contemporary Business Mathematics with Canadian Applications

Contemporary Business Mathematics with Canadian Applications


Edition: 11th
Authors:
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#1
7 years ago
FV = $100 000; P/Y = C/Y = 1; n = 7(1) = 7; b =   = 0.0675; i =   = 0.0725;
PMT = 100 000(0.0675) = $6 750.00. Since b < i, the bond sells at a discount.
(i) Discount = [100000(0.0675) -110000(0.0725)]
   = -1225(5.342633) = -$6544.73
PP = 110000.00 - 6544.73 = $103 455.27
(ii)
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