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21 January, 13:45

A municipality is planning to issue a 5-year zero-coupon bond. The face value is $1,000 and the yield-to-maturity is 5.6%. What is the price of this muni-bond? Round to the nearest cent. Do not include a dollar sign in your answer. (i. e. If your answer is $432.51, then type 432.51 without $ sign)

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  1. 21 January, 14:23
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    Price of bonds = 761.51

    Explanation:

    We know that zero-coupon bonds does not give coupon payment to investor, the return to investor is difference between price and face value of bond is given.

    Formula: P = F / (1+r) ∧T

    where P = Price of bonds=?

    r=yield to maturity=5.6%=0.056

    T=5; No of periods, as in this it is not given semi annually, we will take r annually.

    P = 1000 / (1+.056) ∧5

    P = 1000/1.31316

    P = 761.
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Home » Business » A municipality is planning to issue a 5-year zero-coupon bond. The face value is $1,000 and the yield-to-maturity is 5.6%. What is the price of this muni-bond? Round to the nearest cent. Do not include a dollar sign in your answer. (i. e.
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