Question

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Answer 1

Answer:

= $5,062.5

Explanation:

A municipal bond represents a security usually of debt used primarily for capital expenditure financing by the government of a municipality, a state or a county. Such capital expenditure includes building infrastructures such as roads, schools, hospitals, bridges among several others.

Municipal bonds are usually exempted from taxes; federal taxes and even in quite a number of states both the state and the local taxes. This is done to motivate the people to purchase the bonds.

To calculate the price of the bond in dollars, the step is to

Multiply the Municipal bond quote (in percentage) by the Municipal bond par value

= Municipal bond quote = 101.25%

Municipal bond par value= $5,000

= 101.25% x $5000

= $5,062.5