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sir this is question from bpp.
option 1
A four-year bond with an annual coupon rate of 5 % . The bond is redeemable at par.
then while calculating the issue price for fourth year we r taking amount 105.
And for calculating YTM( just like calculating irr they r showing) for fourth year it is taking 100, is it correct.
one thing I wanted to make clear if the question say like coupon rate 5% and redeemable
at par we right only 100 in the final year,if says at premium then in final we write 105 n same for discount 95,correct?Thanks
If it is redeemable at par, then in 4 years time we will receive 100 (and also, of course, still receive the interest for that year of 5).
If it is redeemable at a premium of (say) 10% then it means we receive 110 in 4 years time (plus also the interest for that year of 5). If it is redeemable at a discount of (say 10%) then it means we will receive 90 in 4 years time (plus, again, the interest for that year of 5). (Redeeming at a discount is extremely unlikely)
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