In: Finance
Union Local School District has a bond outstanding with a coupon rate of 3.6 percent paid semiannually and 12 years to maturity.
The yield to maturity on this bond is 2.4 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.)
PV of bond will be total of PV of coupons and redemption value | ||
P = PMT x (((1-(1 + r) ^- n)) / i) | ||
Where: | ||
P = the present value of an annuity stream | To be computed | |
PMT = the dollar amount of each annuity payment | $ 180.00 | 5000*3.6% |
r = the effective interest rate (also known as the discount rate) | 2.41% | ((1+2.4%/2)^2)-1) |
i=nominal Interest rate | 2.40% | |
n = the number of periods in which payments will be made | 12 | |
PV of coupon payments= | PMT x (((1-(1 + r) ^- n)) / i) | |
PV of coupon payments= | 180*(((1-(1+2.41%) ^-12)) / 2.40%) | |
PV of coupon payments= | $ 1,867.14 | |
PV of redemption amount= | 5000/(1+2.41%)^12 | |
PV of redemption amount= | $ 3,755.24 | |
Price of bond= | 3755.24+1867.14 | |
Price of bond= | $ 5,622.38 |