Calculating the bond in each of the three situations: Bond at Par, Premium Bond and Zero Coupon Bond
Assumptions: $1000 face value of Bond
Coupon Rate = 5% Duration (maturity) = 5yrs Premium
Bond coupon rate = 4%
General Expression for the value of a bond: Bond value = present value of coupons + present value of par
Bond value = C [1 – 1/ (1+r) t] / r + FV / (1+r) t
-Bond at Par Bond value = PV of coupons (annuity) + PV of face value
-Premium Bond
Premium bond – a bond that sells for more than its par value. This is the case when the YTM is less than the coupon rate.
-Zero-coupon Bond