- This topic has 1 reply, 2 voices, and was last updated 5 years ago by
.
- Posts
Sir, can you check whether following 2 point that i wrote is correct or not???
1)
When deciding whether to issue bond at premium or discount we need to calculate the current market value of bond
=> if current market value is less than at per $100 , say $95, then we will issue bond at discount.(discount will be 5%)
=> if current market value is more than at per $100 , say $105, then we will issue bond at premium (premium will be 5%)2)
=> when issuing at a discount (discount 5%), we will issue each $100 bond at $95 now and when redeeming we will redeem each $100 bond at $100 at redemption date
=> when issuing at a premium (Premium 5%), we will issue each $100 bond at $100 now and when redeeming we will redeem each $100 bond at $105 at redemption date
Not quite correct. If you are issuing bonds then they don’t have a market value until you issei’s them – the market value at the date of issue is the issue price.
If you issue at a discount or a premium then the discount or premium is against the nominal value.
So if the nominal value is $100 (as is almost always the case in the exam), then if they are issued at a discount of 5% they will be issued for $95. If they are issued at a premium of 5% then they will be issued for $105.
In both cases they would be redeemed at par ($100)The alternative is to issue at par (i.e. $100) but for them to be redeemable at a premium. So if the remotion premium were 5% they would be issued at $100 and repaid at $105.
- You must be logged in to reply to this topic.