Find solution
What is a bond market?

What is the market interest rate on this premium bond?

  • A $100,000 5 year bond with a coupon rate of 5% is issued at 101% of its value find the market interest rate of this premium bond.

  • Answer:

    The annual interest on that bond is $5,000. Since you paid a 1% premium on that bond the market interest rate is: $5,000/101,000 = 0.049505 = 4.9505%. Please note that this is the effective interest rate and NOT the yield, the latter of which also includes the amortization of the premium paid over the life of the bond.

Ubernoob at Yahoo! Answers Visit the source

Was this solution helpful to you?

Other answers

The preferred method for amortizing the bond premium is the effective interest rate method or the effective interest method. Under the effective interest rate method the amount of interest expense in a given year will correlate with the amount of the bond’s book value. This means that when a bond’s book value decreases, the amount of interest expense will decrease. In short, the effective interest rate method is more logical than the straight-line method of amortizing bond premium.

money

Related Q & A:

Just Added Q & A:

Find solution

For every problem there is a solution! Proved by Solucija.

  • Got an issue and looking for advice?

  • Ask Solucija to search every corner of the Web for help.

  • Get workable solutions and helpful tips in a moment.

Just ask Solucija about an issue you face and immediately get a list of ready solutions, answers and tips from other Internet users. We always provide the most suitable and complete answer to your question at the top, along with a few good alternatives below.