1. F0069
* Property of STI
Page 1 of 4
Premium and Discount Equation
PREMIUM AND
DISCOUNT
EQUATION
Bond Premium & Bond Discount
Bond Premium
Bd = RV (i – b)
Pp = RV - Bd
Bond Discount
+
i
i)(1-1 -n
+
i
i)(1-1 -n
Bp = RV (b – i)
Pp = RV + Bp
2. F0069
* Property of STI
Page 2 of 4
Premium and Discount Equation
Amortization of the Premium
3. F0069
* Property of STI
Page 3 of 4
Premium and Discount Equation
Accumulation of Discount
4. F0069
* Property of STI
Page 4 of 4
Premium and Discount Equation
Flat Price at a Given Yield Between Dates
1. Compute the flat price Pp(A) of the bond to
the yield rate i at A.
2. Add to Pp(A) simple interest on Pp(A) at the
rate i for the time from A to B in order to
obtain the flat price Pp(B) to yield the rate i.
3. Subtract the accrued interest l on day B from
P to find the “and interest” price Q of the
bond at B to yield the rate i.
