A $30,000?, 5?% bond redeemable at par with interest payable annually is bought 5.5 years before maturity. Determine the premium or discount and the purchase price of the bond if the bond is purchased to yield

?(a) 4?% compounded? annually;

?(b) 6?% compounded annually.

Step 1

if bond is trading in market greater than original than the bond is said to be at premium

if bond is trading in market lesser than original than the bond is said to be at discount.

It can be determined by discounting interest and maturity value to present value factors.

Step 2

If face value of bond is $30000 having 5 years to maturity, with 5% interest payable annually.

a) if yield is 4% than 

 = $30000*5%( PVAF 4% 5 yrs) + $30000( PVF 4% 5 yrs)

= $1500*4.4518 + $30000*0.82192

=$6678 + $24658

=$31336

ib)f yield is 6% than 

 = $30000*5%( PVAF 6% 5 yrs) + $30000( PVF 6% 5 yrs)

= $1500*4.32947 + $30000*0.783526

= 6494+23505

=30000

option a) is at premium at 4% yield 

option b) is at Discount at 6% yield