I cant believe I messed up 3, i was typing this out thinking that he/she said the answer was discount but i check and its premium. WOW I gotta be careful reading the question. Will leave this example in for people to see since its already typed out lol take the following example: 1o yr bond 10% coupon 100 face For premium: IR were 9% For discount: IR @ 11% IE for premium in year 1: PV of bonds ($106.41)*.9=9.5776 coupon 10 new PV=105.9 IE for premium in year 2: PV of bonds ($105.99)*.9=9.5391 IE for discount in year 1: PV of bonds ($94.11)*.11=10.3522 coupon 10 PV=94.46 IE for discount in year 2: PV of bonds ($94.46)*.11=10.39 so how is scenario 3
getter, are you saying that IE for premium bond > IE for discount bond? I can’t follow your example above. It’s show IE for discount bonds to be 20+, and IE for premium to be 18+ What’s the message here. Should we consider interest expense simply as the difference, or in aggregation with coupon. Cuz then IE for discount comes out to be 74 cents, and IE for premium comes out to be 90 cents. Please help!!!
wow i need to sleep too, 3 should be C discount bonds! the question for scenario 3 pepp reads what has the greatest IE, and if you look @ my example the bond with the highest IE is discount bonds. the premium amoritzation for premium bonds is equal IE-coupon, which is negative and reduces the liability each year the premium amort for discount bonds is IE-coupon which is positive and you add to the liability for each succesive year
But the answer for 3 is B, not C.
but it should be C 
DBB, is that correct?
kant Wrote: ------------------------------------------------------- > Ok the Answers I have are: > > 1) B - The bond issued at a premium is making a > coupon payment above that of any of the other > bonds. This coupon is the amount that is > reflected in the cash flow from operations. > Therefore, premium bonds have the lowest cash flow > from operations, relative to other bonds (par, > discount, and zero-coupon). Remember, the offset > is that premium bonds will have higher cash flows > from financing activities I thought coupon payment is same for all, par discount or premium.
pepp Wrote: ------------------------------------------------------- > kant Wrote: > -------------------------------------------------- > ----- > > Ok the Answers I have are: > > > > 1) B - The bond issued at a premium is making a > > coupon payment above that of any of the other > > bonds. This coupon is the amount that is > > reflected in the cash flow from operations. > > Therefore, premium bonds have the lowest cash > flow > > from operations, relative to other bonds (par, > > discount, and zero-coupon). Remember, the > offset > > is that premium bonds will have higher cash > flows > > from financing activities > > > I thought coupon payment is same for all, par > discount or premium. No, if the coupon payment are different because YTM are different. Same YTM, same par value, different prices then coupon payment must be different.