Question

Union Local School District has a bond outstanding with a coupon rate of 3.3 percent paid semiannually and 15 years to maturity. The yield to maturity on this bond is 3.8 percent, and the bond has a par value of $10,000. What is the price of the bonds?

Answer 1

The price of the bond is $9432.31

Step-by-step explanation:

The current price of the bond can be computed using the present value formula in excel,which is given as =pv(rate,nper,pmt,fv)

where rate is the yield to maturity of 3.8% divided by 2 as it is semi-annual interest paying bond.

nper is the time to maturity of the bond of 15 years multiplied by 2

pmt is the semi-annual interest receivable by investor

3.3%/2*$10000=$165

fv is the face value of $10,000

=pv(3.8%/2,30,165,10000)

pv=$9432.31

The price of the bonds is $9432.31,which implies that the bonds are issued at discount to face value of $10,000

Answer 2

the price of the bonds is $11,812.43

Step-by-step explanation:

The Price of the Bond is equal to the Present Value of the Bond.

Using a Financial Calculator insert the values as follows :

Pmt= $10,000 × 3.3 % = $330

N = 15

YTM (i) = 3.8 %

Fv = $10,000

P/yr = 2

PV = ?

PV = -11,812.4282

Therefore the price of the bonds is $11,812.43