Sir in this question 6% bond are redeemed at par in five years time.So in fifth year it is
1060×1.042^-5,my question is if instead of at par the question says redeemed at premium or discount what will be the figure in place of 1060. Thanks
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GNT Dec 11/pilot papet
11y ago#1Of the 1,060 in 5 year time, 1,000 is the repayment and 60 is the interest.
If they were going to be repaid at a premium of (say)10%, then the repayment would be 1,100 and the interest 60, so a total of 1160.
The discount factor for 5 years at 1.042% would be unchanged.
Thank you sir.
11y ago#3You are welcome :-)
They have used 5% and 4% discount rate but i have tried 5% and 10% discount rates and got the same duration but i am getting a difference of 10 in market price of first bond compared to the price given in question. Do tell me if my approach is not correct.
10y ago#5Your approach is fine (the difference occurs because IRR's are always only approximate).
Thank you Sir :)
10y ago#7You are welcome :-)
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