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lianna [129]
3 years ago
9

Union Local School District has bonds outstanding with a coupon rate of 2.9 percent paid semiannually and 24 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 price of the bonds?
Business
2 answers:
SpyIntel [72]3 years ago
5 0

Answer: $4,642.37

The price of the bond is $4,642.37

Explanation:

Using the price of bond formula :

C × 1 - (1+r) *-n / r. + F / (1+r)*n

C = coupon rate = 2.9% of 10,000

= $290

n = 24years...... years to maturity

F = $10,000...... Face value/par value

r = yield to maturity = 3.4% = 0.034

Price of bond =

290 × 1–(1+0.034)*-24 /0.034

+ 10,000 / (1.034)*24

290× 1 - (1.034)*-24 / 0.034

+ 10,000 / (1.034)*24

290 × (1 - 0.448236347)

+ 4,482.36347

160.011459 + 4,482.36347

Price = $4,642.37 as the price of bond.

zhuklara [117]3 years ago
5 0

Answer:

Price of bond=$9,184.18

Explanation:

Explanation:

<em>The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV) discounted at the yield rate</em>

Value of Bond = PV of interest + PV of RV

The value of bond for Local School District can be worked out as follows:

Step 1

<em>PV of interest payments</em>

Semi annul interest payment:

= 2.9% × 10,000× 1/2= 145

<em>Semi-annual yield</em> = 3.4/2 = 1.7%

<em>Total period to maturity</em> = (2 × 24) = 48 periods

<em>PV of interest payment: </em>

=145× (1- (1+0.017)^(-48)/0.017)

= 4,731.77

Step 2

<em>PV of Redemption Value</em>

= 10,000 × (1.017)^(-48)

= 4,452.40

Step 3

Price of bond

=4,731.77 + 4,452.40

=$9,184.1766

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Answer:

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Explanation:

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We therefore proceed with the following two steps:

Step 1: Calculation of the value of the investment on the 65th birthday

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PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

PV at 65 = Present value of the annuity at 65th birthday =?

P = Annuity payment = Invested amount * Student's desired return = $8,900 * 6% = $534

r = Student's desired return rate = 6%, or 0.06

n = number of more years anticipate to live after 65th birthday = 21

Substitute the values into equation (1) to have:

PV at 65 = $534 * ((1 - (1 / (1 + 0.06))^21) / 0.06)

PV at 65 = $534 * 11.764076621288

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The value of this deferred annuity today on his 50th birthday can therefore be calculated using the simple present value for as follows:

PV at 50 = PV at 65 / (1 + r)^N …………………………….. (2)

Where;

PV at 50 = the value of this deferred annuity today on his 50th birthday = ?

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Therefore, the value of this deferred annuity today on his 50th birthday is <u>$2,621.27</u>.

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