Answer:
The price of the bond is $4,632.16
Explanation:
Coupon payment = $5,000 x 2.8% = $140 /2 = $70 semiannually
Number of period = n = 16 years x 2 period per year = 32 period
Yield to maturity = 3.4% annually = 3.4% / 2 = 1.7% semiannually
Price of bond is the present value of future cash flows, to calculate Price of the bond use following formula:
Price of the Bond = C x [ ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Price of the Bond =$70 x [ ( 1 - ( 1 + 1.7% )^-32 ) / 1.7% ] + [ $5,000 / ( 1 + 1.7% )^32 ]
Price of the Bond = $70 x [ ( 1 - ( 1.017 )^-32 ) / 0.017 ] + [ $1,000 / ( 1.017 )^32 ]
Price of the Bond = $1,716.72 + $2,915.41
Price of the Bond = $4,632.13
