Question

12. A 25 year municipal bond has a maturity value of $20,000 and a coupon rate of 4.8%. Coupons

are paid semi-annually, at the end of each period. Find the market price of the bond if the

           current yield is 5.5% per year, compounded semi-annually. Is the bond selling at a premium

           or discount?

N =

I % =

PV =

PMT =

FV =

P/Y =

C/Y =

PMT: END BEG

Answer 1

Table values are based on:
Face Amount	$                                                                            20,000
Interest Payment($20,000*2.4%)	$                                                                                 480
Market Interest rate per period	2.75%
Cash Flow	Table Value(PV of 2.75% for 50 period)	Amount	Present Value
PV of Interest	26.99717	$                                                        480	$12,959
PV of Principal	0.25758	$                                                   20,000	$5,152
PV of Bonds Payable(Issue Price)			$18,110
Since the issue price is less than the Matrurity value hence the Bond is issued at Discount of $1,890($20,000-$18,110)