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2 February, 18:09

Megan buys a bond that is redeemable for its par value of 20,000 after 5 years. The bond pays coupons of 800 annually. The bond is bought to yield 8% annually. Calculate the accumulation of discount (principal) in the 4th coupon.

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  1. 2 February, 18:26
    0
    685.87.

    Explanation:

    Yield (Y) = 8%

    Number of periods (n) = 5 years

    Par value of the bonds (FV) = 20,000

    Coupon Payment (PMT) = 800

    Required: accumulation of discount in 4th coupon

    The amount of discount in 4th coupon would be equal to the difference between value of bond at the end of 3rd coupon payment and value of bond at the end of 4th coupon payment.

    Value of bond at the end of 3rd coupon payment can be calculated using financial calculator as below:

    Input. Output

    Y 0.08

    n. 2

    PMT - 800

    FV - 20000

    PV. 18573.39

    Value of bond at the end of 4th coupon payment can be calculated using financial calculator as below:

    Input Output

    Y. 0.08

    NPER. 1

    PMT. - 800

    FV. - 20000

    PV. 19259.26

    Thus, amount of discount accumulated in 4th coupon payment = 19,259.26 - 18,573.39 = 685.87.
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Home » Business » Megan buys a bond that is redeemable for its par value of 20,000 after 5 years. The bond pays coupons of 800 annually. The bond is bought to yield 8% annually. Calculate the accumulation of discount (principal) in the 4th coupon.
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