Union Local School District has bonds outstanding with a coupon rate of 3.3 percent paid semiannually and 15 years to maturity.
The yield to maturity on these bonds is 3.8 percent and the bonds have a par value of $10,000. What is the price of the bonds?
1 answer:
Answer:
The correct answer is $9432.31.
Explanation:
According to the scenario, The given data are as follows:
Par Value (FV) = $10,000
Time Period = 15 years
Time period (Semi annual) (Nper) = 30
Coupon rate ( semi annual) = 3.3% / 2 = 1.65%
So, payment (pmt) = $10,000 × 1.65% = $165
Yield (r) (semiannual) = 3.8% / 2 = 1.9%
By putting the value in financial calculator, we get
Hence, The price of the bond is $9432.31.
You might be interested in
Answer:
<em>$111.11 or 111.11% of face value</em>
Explanation:
Assuming the face value of $100 for all bonds (without loss of generality)
If the two year coupon bond is repackaged as a one year zero coupon bond paying $12 after one year and another two year bond paying $112 after 2 years, the price of the two zero coupon bonds are given as
Price of one year Zero coupon bond = 12/1.05 = $11.43 (one year ZCB has YTM of 5%)
Price of two year Zero coupon bond = 112/1.06^2 = $99.68 (two year ZCB has YTM of 6%)
So, one can sell the repackaged bonds at a price = $11.43+ $99.68 = $111.11 or 111.11% of face value
