Union Local School District has bonds outstanding with a coupon rate of 4.3 percent paid semiannually and 18 years to maturity.
The yield to maturity on these bonds is 3.4 percent and the bonds have a par value of $10,000. What is the dollar price of each bond?
1 answer:
Answer:
$11,204.25
Explanation:
For computing the dollar price of each bond we need to applied the present value formula which is to be shown in the attachment below:
Provided that
Future value = $10,000
Rate of interest = 3.4% ÷ 2 = 1.7%
NPER = 18 years × 2 = 36 years
PMT = $10,000 × 4.3% ÷ 2 = $215
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
After applying the above formula, the dollar price of the bond is $11,204.25
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Answer:
$29.83
Explanation:
This question requires application of dividend discount model, according to which current value of share is present value of dividends expected in future.
where V2 is the terminal value, present value of dividends growing at constant growth rate,
V2 = Div3 ÷ (r - g)
Div3 = $2.24 × (1 + 2.8%)
= $2.30272
V2 = $2.30272 ÷ (0.102 - 0.028)
= $2.30272 ÷ 0.074
= $31.12
= 2.36 + 1.84 + 25.63
= $29.83