SAK asked in Business & FinanceInvesting · 1 decade ago

Proctor and Gamble's 8% bonds due in in 2024 were reported as selling for 126.987.?

Were the bonds selling at a premium or at a discount? Explain? Accounting Help. Thanks!

2 Answers

  • 1 decade ago
    Best Answer

    The bond is selling at a premium. It pays 8% on its face value, but since current interest rates are currently lower than that you have to pay more than face value to buy it. As a result,the interest payments you'll get will correspond to what you would get on a bond issued at the current interest rate. Example: with an 8% interest rate, you will get $80 per year for every $1000 of the bond's face value. But you will pay $1269.87 (plus fees) for every $1000 of face value. So the interest you will get on what you paid is 80 / 1269.87 = 6.3%. When current interest rates go lower, the market value of a bond increases and vice-versa.

    Source(s): My finance courses in university
  • Anonymous
    1 decade ago

    They are selling at a 26% premium. This is due to the sound credit rating of PG and the very high yield of the bonds.

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