Nine $2000, 9% Bonds with Interest Payable Semi-Annually and Redeemable

question 69

Multiple Choice

Nine $2000, 9% bonds with interest payable semi-annually and redeemable at par are purchased 7 years before maturity. Find the premium or discount and the purchase price if the bonds are bought to yield 4%.

• A) $5447.81 premium
• B) $5447.81 discount
• C) $4600.27 premium
• D) $11.14 discount
• E) $4600.27 discount

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Definitions:

Bond Certificate

A physical document representing the investor's right to receive the principal and interest from a bond issuer.

Semiannual Interest

Interest that is calculated and paid twice a year, often on a bond or loan.

Bond Premium

The amount by which the market price of a bond exceeds its face value, usually occurring when the bond's interest rate is higher than the current market rate.

Straight-line Method

An accounting method of depreciating fixed assets where the asset's cost is evenly distributed over its useful life to allocate the expense of the asset over its lifespan.