Question

A municipal bond with a coupon rate of 2.7 percent has a yield to maturity of 3.7 percent. Assume a face value of $5,000. If the bond has 12 years to maturity, what is the price of the bond?

Answer 1

Bond Price​= $4,522.47

Step-by-step explanation:

Giving the following information:

Cupon= 5,000*0.027= $135

YTM= 3.7%

Face value= $5,000

Perios= 12 years

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​= 135*{[ 1 - (1.037^-12)] / 0.037]} + [5,000/(1.037^12)]

Bond Price​= 1,289.33 + 3,233.14

Bond Price​= $4,522.47