Facts for Examples of a Bond: -- Selling at Par -- Selling at a Discount -- Selling at a Premium
Bond Contract Facts:
Face Amount:
$300,000
5.00%
Term:
4 Years
Interest Paid:
Annually
$15,000
Cash Payment Stream from the Bond:
Now (time 0)
End of Yr. 1
End of Yr. 2
End of Yr. 3
End of Yr. 4
Cash Interest Payment
$15,000
$15,000
$15,000
$15,000
Maturity Payment of the Bond
$300,000
Selling Price of the Bond if
Payment Amt.
Table Factor
Present Value
$15,000
3.54595
$53,189.25
Present Value of $300,000 Maturity Pmt.
$300,000
0.82270
$246,810.00
Selling Price of the Bond using the present value tables
$299,999.25
Selling Price of the Bond if Present Value Tables with more than 5 decimal places were used
$300,000.00
Selling Price of the Bond if
Payment Amt.
Table Factor
Present Value
$15,000
3.46511
$51,976.65
Present Value of $300,000 Maturity Pmt.
$300,000
0.79209
$237,627.00
$289,603.65
Selling Price of the Bond if Present Value Tables with more than 5 decimal places were used
$289,604.68
Selling Price of the Bond if
Payment Amt.
Table Factor
Present Value
$15,000
3.62990
$54,448.50
Present Value of $300,000 Maturity Pmt.
$300,000
0.85480
$256,440.00
$310,888.50
Selling Price of the Bond if Present Value Tables with more than 5 decimal places were used
$310,889.69
Stated
Annual Interest Rate:
Annual
Cash Interest Payments:
$300,000 x
5% (stated annual rate)
=
Effective
Annual
Interest Rate =
5%
Present Value of
$15,000 Interest Pmts.
for 4 periods @
5% (effective annual rate)
due in 4 periods @
5% (effective annual rate)
sold at par (
effective rate
=
stated rate
)
Effective
Annual
Interest Rate =
6%
Present Value of
$15,000 Interest Pmts.
for 4 periods @
6% (effective annual rate)
due in 4 periods @
6% (effective annual rate)
Selling Price of the Bond using the present value tables --
this would be your calculated answer
sold at a discount (
effective rate
>
stated rate
)
Effective