1. Premium /discount formula
r — coupon rate, the ratio of coupon income to face value
g — modified coupon rate (modified coupon rate)
The ratio of coupon income to repayment value C, that is
Derivation:
If P > C , it is said to be sold at a
premium Premium = C (g – i)
If P = C, sell at par, modified coupon rate g = yield to maturity i.
If P < C, sell at a discount, which is a negative premium.
Second, the common form of the premium formula
When C = F, g = r
When r = i
is issued at a premium, when r > i
is issued at a discount, r < i