The following information about two independent bond issues was reported in the financial press:
1. Alberta Capital Finance 2.25% bonds, maturing September 15, 2015, were issued at a price of 99.46 to yield a market interest rate of 3.51%.
2. City of Waterloo 2.25% bonds, maturing December 1, 2012, were issued at a price of 100.46 to yield a market interest rate of 2.02%.
Instructions
(a) Were the Alberta Capital Finance bonds issued at a premium or a discount?
(b) Were the City of Waterloo bonds issued at a premium or a discount?
(c) Explain how bonds, both paying the same coupon interest rate (2.25%), could be issued at different prices.
(d) Record the issue of $100,000 of each of these two bonds.