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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 :

sebastiansierraocm

Answer:

$4,420.35

Explanation:

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

Where:

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

Now we plug the amounts into the formula =

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

[tex]Bond Price = $4,420.35[/tex]

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