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Union local school district has bonds outstanding with a coupon rate of 3.2 percent paid semiannually and 16 years to maturity. The yield to maturity on these bonds is 3.7 percent and the bonds have a par value of $5,000. What is the dollar price of the bonds?

Respuesta :

facundobuzzetti

Answer:

Bond Price​= $4,700.15

Explanation:

Giving the following information:

coupon rate= 0.032/2= 0.016

YTM= 0.037/2= 0.0185

Number of periods= 16*2= 32

Par value= $5,000

To calculate the price of the bond, we need to use the following formula:

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 80*{[1 - (1.0185^-32)] / 0.0185} + (5,000/1.0185^32)

Bond Price​= 1,919.05 + 2,781.10

Bond Price​= $4,700.15