Question

Harpeth Valley Water District has a bond outstanding with a coupon rate of 3.63 percent and semiannual payments. The bond matures in 23 years, with a yield to maturity of 4.17 percent, and a par value of $5,000. What is the market price of the bond

Answer 1

Answer:

Market price of Bond = $4603.116669 rounded off to $4603.12

Explanation:

To calculate the price of the bond, we need to first calculate the coupon payment per period. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Coupon Payment (C) = 5000 * 0.0363 * 1/2 = $90.75

Total periods (n)= 23 * 2 = 46

r = 4.17% * 1/2 = 2.085% or 0.02085

The formula to calculate the price of the bonds today is attached.

Bond Price = 90.75 * [( 1 - (1+0.02085)^-46) / 0.02085]  +  5000 / (1+0.02085)^46

Bond Price = $4603.116669 rounded off to $4603.12