Question

Union Local School District has a bond outstanding with a coupon rate of 2.8 percent paid semiannually and 16 years to maturity. The yield to maturity on this bond is 3.4 percent, and the bond has a par value of $5,000. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

$4,420.35

Explanation:

Bond Price = $C x [1 - (1 + r)^{-n} / r] + F / (1 + r)^{n}$

Where:

• C = Coupon
• r = Yield to Maturity
• n = compounding periods to maturity

Now we plug the amounts into the formula =

$Bond Price = 140 x [1 - (1 + 0.034)^{-32} / 0.034] + 5,000 / (1 + 0.034)^{32}$

$Bond Price = 4,420.35$