Based on the price of the bond, the coupon rate and the interest, the premium on the bond at issuance would be a. $36.798 premium.
This can be found as:
= (Coupon x Present value of an annuity 10 years, 6%) + (Face value of bond x Present value factor, 10 years, 6%)
Coupon is:
= 7% x 500,000
= $35,000
Solving for price is:
= (35,000 x 7.36009) + (500,000 x 0.55839)
= $536,798.15
Because the current selling price is higher than the face value, the bond is said to be trading at a premium of;
=536,798.15 - 500,000
= $36,798
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