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!
- 1 decade agoBest 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
- Anonymous1 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.