Final answer:
The treasury bond is priced at $1,036.56, the corporate bond at $961.00, and the municipal bond at $5,025.00. For instance, a bond that would pay a final amount of $10,600 in a year when interest rates are now 9%, would be worth $9,724.77 to a buyer.
Step-by-step explanation:
The price of a bond in dollars, when given a quote, can be determined by multiplying the quote by the par value of the bond. For the treasury and corporate bonds with a par value of $1,000, the calculation is straightforward:
- Treasury bond: 103.6563% of $1,000 = $1,036.56
- Corporate bond: 96.10% of $1,000 = $961.00
For the municipal bond with a par value of $5,000, the process is similar:
- Municipal bond: 100.50% of $5,000 = $5,025.00
For example, a 10,000 ten-year bond at a 6% interest rate being considered for purchase when the market rate is 9%, would have its price adjusted down to make its return competitive with new bonds at the 9% rate.
To calculate what you would actually be willing to pay for such a bond, you would discount the expected payments back at the current market interest rate. Assuming the bond pays $600 annually and will pay its final sum one year from now, the calculation would be:
- $10,600 / (1 + 0.09) = $9,724.77
Therefore, you would not be willing to pay more than $9,724.77 for the $10,000 bond.