FRA question on income statement

CFA Level I FRA
#1

So this question, i may be thinking backwards…

Corp. issued $95 mill of 10 year 8% coupon bonds in 2005. In 2005, the market interest rate was 6%. The current market interest rate is 9%. Given a high cash balance, the company is considering repurchasing the entire bond issue. If Corp repurchases the bonds, what is the immediate effect in the Corps income statement?

A) loss is recognized

B) gain is recognized

C) no gain or loss is recognized.

Ok, so the company issued their bonds are a premium. Since the interest rate now is above 9%, doesn’t that mean there current bonds value will go down since (interest rate up, price of bond goes down). So that means there will a loss? Am i overthinking this question?

THANKS!

The answer is B) gain is recognized.

#2

no look at it this way…when the company issued the bonds they were issued at a premium so company collected at an amount greater than F.V…when the bonds were purchased back they were at a discount so company paid an amount less than the F.V…therefore the gain… think of it as u borrowed from some1 an amount equal to 1050(i.e at a premium when the F.v is 1000) and than u repaid him only 950 for his entire o/s amount two years later…u made a profit didnt u?