A municipality is planning to issue a 5-year zero-coupon bond. The face value is $1,000 and the yield-to-maturity is 5.6%. What is the price of this muni-bond? Round to the nearest cent. Do not include a dollar sign in your answer. (i. e. If your answer is $432.51, then type 432.51 without $ sign)

Question

Business

Nathan

6 October, 00:03

A municipality is planning to issue a 5-year zero-coupon bond. The face value is $1,000 and the yield-to-maturity is 5.6%. What is the price of this muni-bond? Round to the nearest cent. Do not include a dollar sign in your answer. (i. e. If your answer is $432.51, then type 432.51 without $ sign)

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Howard Rodgers · Answer 1

Price of bonds = 761.51

Explanation:

We know that zero-coupon bonds does not give coupon payment to investor, the return to investor is difference between price and face value of bond is given.

Formula: P = F / (1+r) ∧T

where P = Price of bonds=?

r=yield to maturity=5.6%=0.056

T=5; No of periods, as in this it is not given semi annually, we will take r annually.

P = 1000 / (1+.056) ∧5

P = 1000/1.31316

P = 761.