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Math Help - Premium Discount Formula

  1. #1
    Member
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    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?
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  2. #2
    MHF Contributor
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    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?
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