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17 August, 04:27

A 1000 par value 5-year bond with an annual coupon rate of 8.0% compounded semiannually was bought to yield 7.5% convertible semiannually. The bond will redeem at par value at maturity Determine the amount of premium amortized in the 6th coupon payment? Hint: What is the principal adjustment in the 6th coupon period?

(a) 2.00

(b) 2.08

(c) 2.15

(d) 2.25

(e) 2.34

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  1. 17 August, 05:04
    0
    (b) 2.08

    Explanation:

    Using caclulator and inputs as present:

    n = 10

    I/Y = 7.5/2

    =3.75

    pmt = 40

    FV = 1000

    CPT PV = $1020.53

    Now we shall create an amortization schedule:

    Period pmt Interest End balance Difference (Premium amortized)

    1 $40.00 $38.27 $1,018.80 $1.73

    2 $40.00 $38.21 $1,017.01 $1.79

    3 $40.00 $38.14 $1,015.14 $1.86

    4 $40.00 $38.07 $1,013.21 $1.93

    5 $40.00 $38.00 $1,011.21 $2.00

    6 $40.00 $37.92 $1,009.13 $2.08

    Therefore, The amount of premium amortized in the 6th coupon payment is $2.08
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