Union local school district has a bond outstanding with a coupon rate of 3.3 percent paid semiannually and 20 years to maturity.
The yield to maturity on this bond is 3.7 percent, and the bond has a par value of 10000. What is the price of the bonds?
1 answer:
Answer:
$9,438.22
Explanation:
For computing the price of the bond we need to apply the present value formula i.e be to shown in the attachment below:
Given that,
Future value = $10,000
Rate of interest = 3.7% ÷ 2 = 1.85%
NPER = 20 years × 2 = 40 years
PMT = $10,000 × 3.3% ÷ 2 = $165
The formula is shown below:
= -PV(Rate;NPER;PMT;FV;type)
So, after applying the above formula, the price of the bond is $9,438.22
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