E13 Premuim and Discount

Question 1

how would we know a bond is bought at a premium?

Answer 1

if P > C

Question 2

how would we know a bond is bought at a discount?

Answer 2

if P<C

Question 3

how would we know a bond is priced at par?

Answer 3

if Fr = Ci are equal

Question 4

how can we tell if a bond is premium or discount from the Premuim/Discount Formula?

Answer 4

If Fr > Ci than premium of Fr < Ci discount

Question 5

what is the premium/discount formula in terms of g?

Answer 5

P = C + (Cg - Ci) a angle n

If g>i then premium, if g<i discount

Question 6

T or F: If r > i, then the bond must be a premium bond.

Answer 6

False. You can’t just look at r vs i. You have to look at F r
vs Ci or g vs i to determine if a bond is a discount or
premium bond

Question 7

T or F: If g < i, then the bond must a discount bond.

Answer 7

True.

Question 8

If Ki > F r, then the bond must a discount bond.

Answer 8

True. This one is a little tricky. Note that K = PV(C), thus K < C and Ki < Ci. So if Ki > F r, then Ci > F r.