Premium Discount Formula
A $3,000 9% twelve year bond with annual coupons is purchased with a discount of $57 and yields 9.1% if held to maturity. Find the price.
This is what I did:
270 Payments on an annuity for 12 years with interest of 9.1 percent. This gave me 2967.03.
Discount = C-P so C = 57+P
P = 2967.03 + (57+P)v^12
v^12 = .351644
I got that P = 4,639.35
The book gives 2,997.95 as the answer. What did I do wrong?
1) You'll have to demonstrate your calculation of the annuity. Something very wrong with that. I get $1,828.75 from the formulation you suggested.
2) Are you sure it gives annual coupons of $270, or should it be semi-annual coupons of $135?