Question 4

1. On 31 March 2020, the AOFM issued 6-year Government fixed-interest bonds with a face value of $20 million, paying half-yearly coupons at 8.00 per cent per annum. On 15 September 2022, the holder of the bonds sells at a current yield of 8.75 per cent per annum. You are required to calculate the price of the bond. In your answer, identify whether the bond is trading at a discount or a premium, and explain the logic why this is the case. Show all calculations.