SOLUTION: Union Local School District has a bond outstanding with a coupon rate of 3.7% paid semiannually and 16 years to maturity. The yield to maturity of the bond is 3.9%, and the bond ha
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-> SOLUTION: Union Local School District has a bond outstanding with a coupon rate of 3.7% paid semiannually and 16 years to maturity. The yield to maturity of the bond is 3.9%, and the bond ha
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Question 1083905: Union Local School District has a bond outstanding with a coupon rate of 3.7% paid semiannually and 16 years to maturity. The yield to maturity of the bond is 3.9%, and the bond has a par value of $5000. What is the price of the bond? Answer by jim_thompson5910(35256) (Show Source):
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Answer: $4,881.80
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The formula we're using is
where
C = annual coupon payment (in dollars)
YTM = Yield To Maturity (expressed in decimal form)
M = Maturity of the bond (in years)
FV = face value of the bond (aka the par value in dollars)
In this case,
C = (coupon rate)*(Par value) = (3.7/100)*5000 = 185 dollars
YTM = (3.9/100) = 0.039
M = 16 years
FV = 5000 dollars
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