Question

1000 par value 5 year bond with 8% semiannual coupons was boughtto yield 7.5% convertible semiannually. Determine the amount of premiumamortized in the six

Answer 1

$2.08

Step-by-step explanation:

First calculate the price of the bond

Price of the bond = [ ( 1000 x 8% x 6/12 ) x ( ( 1 - ( 1 + (7.5%x6/12) )^-(5x2) )/(7.5%x6/12) ] + { 1000 / (7.5%x6/12) ]

Price of the bond = $1,020.53

Now calculate the premium

Premium on the bond = Price of the bond - Face value of the bond = $1,020.53 - $1,000 = $20.53

Now prepare the amortization schedule to calculate the premium amortization in 6th payment.

The amortization schedule is attached with this answer please find that.

Hence, In the sixth payment the premium amortization is $2.08