The bond matures 6 years from now and has a face value of $100,000. The effective interest rate on the bond is 6%. The bond has a stated interest rate of 9%. Interest payments are semiannual.

Use the same bond from question 1 and recalling that the bond sells for $114,931 amortize the bond premium.

Question:

1. Why does the bond sell for a premium?

2. A second bond matures in 6 years, has a face value of $100,000, an effective interest rate of 4%, stated interest rate of 3%, and semiannual interest payments. It sells for $94,712. Amortize the bond discount.