Ask Question
12 September, 08:51

Union Local School District has bonds outstanding with a coupon rate of 2.9 percent paid semiannually and 24 years to maturity. The yield to maturity on these bonds is 3.4 percent and the bonds have a par value of $10,000. What is the price of the bonds?

+2
Answers (2)
  1. 12 September, 11:25
    0
    Price of bond=$9,184.18

    Explanation:

    Explanation:

    The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV) discounted at the yield rate

    Value of Bond = PV of interest + PV of RV

    The value of bond for Local School District can be worked out as follows:

    Step 1

    PV of interest payments

    Semi annul interest payment:

    = 2.9% * 10,000 * 1/2 = 145

    Semi-annual yield = 3.4/2 = 1.7%

    Total period to maturity = (2 * 24) = 48 periods

    PV of interest payment:

    =145 * (1 - (1+0.017) ^ (-48) / 0.017)

    = 4,731.77

    Step 2

    PV of Redemption Value

    = 10,000 * (1.017) ^ (-48)

    = 4,452.40

    Step 3

    Price of bond

    =4,731.77 + 4,452.40

    =$9,184.1766
  2. 12 September, 11:27
    0
    Answer: $4,642.37

    The price of the bond is $4,642.37

    Explanation:

    Using the price of bond formula:

    C * 1 - (1+r) * -n / r. + F / (1+r) * n

    C = coupon rate = 2.9% of 10,000

    = $290

    n = 24years ... years to maturity

    F = $10,000 ... Face value/par value

    r = yield to maturity = 3.4% = 0.034

    Price of bond =

    290 * 1 - (1+0.034) * -24 / 0.034

    + 10,000 / (1.034) * 24

    290 * 1 - (1.034) * -24 / 0.034

    + 10,000 / (1.034) * 24

    290 * (1 - 0.448236347)

    + 4,482.36347

    160.011459 + 4,482.36347

    Price = $4,642.37 as the price of bond.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Union Local School District has bonds outstanding with a coupon rate of 2.9 percent paid semiannually and 24 years to maturity. The yield ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers