Question

A municipal bond with a coupon rate of 3.8 percent has a yield to maturity of 4.8 percent. Assume a face value of $5,000. If the bond has 8 years to maturity, what is the price of the bond?

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =8

Bond Price =∑ [(3.8*5000/100)/(1 + 4.8/100)^k]     +   5000/(1 + 4.8/100)^8

k=1

Bond Price = 4674.21