A 5,000 par value municipal bond with a coupon rate of 2.7 percent has a yield t
ID: 2647790 • Letter: A
Question
A 5,000 par value municipal bond with a coupon rate of 2.7 percent has a yield to maturity of 3.7 percent. If the bond has 12 years to maturity, what is the price of the bond? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price of the bond
A 5,000 par value municipal bond with a coupon rate of 2.7 percent has a yield to maturity of 3.7 percent. If the bond has 12 years to maturity, what is the price of the bond? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
Bond current price is nothing but present value of all future cash flows generated from bond.
That means
Current Price of Bond=( Present value of interest received ) +( Present Value of Face value of bond received at the time of maturity)
Present Value of Interest received during the life of bond= F x C x [1-(1+YTM)-t]/YTM
Present Value of Maturity amount= F/(1+YTM)t
Where F= Face Value, YTM= Yield to Maturity, C= coupon rate, t= life of bond,
F= 5000, C= 2.7%, YTM= 3.7%, t= 12 Years
Bond Price= 5000 x .027 x [1-(1.037)^-12]/.037 + 5000/(1.037)^12
Bond Price= 1289.328 + 3233.143
Bond Price= 4522.47
Bond Price= 4522.47
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