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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. ThanksOf 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.
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.
Your approach is fine (the difference occurs because IRR’s are always only approximate).
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